Ministry of Commerce And Supplies - Enhanced Integrated ...

N T I S2010Production Capacity: Nepal’s current annual production capacity is as follows: Cold rolled galvanized sheets (340,000 MT) Black galvanized steel pipes (220,000 MT) Structures, poles, towers, bridges, etc (240,000 MT) Mild-low carbon-coated and high tensile galvanized wires (84,000 MT) Brash sheets (copper 64 per cent and zinc 36 per cent) (4,000 MT) Bicycle rims (1,000 MT)The capacity utilization of export-oriented companies in each product line currently varies from 50-100 percent. Recently, capacity utilization has been restricted by adverse external factors like general strikes, poweroutages, low labour productivity, etc.Competitiveness of the Steel Sector: According to information obtained from Nepalese producers, Nepal’ssteel industry is based on certain advantages over competitors in India: High flexibility in terms of quantity and delivery time and customization of products to suit customerrequirements. Facilities to import against payments in US dollar allows Nepalese producers to source raw materialsat a slightly cheaper price (2-5 per cent) because receiving US dollar payments make Indian exporterseligible for duty-free imports under the Indian Duty Exemption Passbook (DEPB) scheme. Due to the volume, the companies have been able to negotiate good commercial terms with vendorslike Hindustan Zinc of India for supply of zinc and steel majors like Posco, Nippon steel, and Tata steel. The product quality is well recognized as some of the companies are registered with Nepal Standard(NS) and ISI for making standard quality products. For example, while most of the reputed Indiancompanies use 120 grams zinc in galvanizing, Nepalese companies offer 145 grams of zinc-coatedsheets to meet international standards. Domestic supplies in India and Bhutan have not adequately met the growing demand for developmentprojects. The Government of India and Power Grid Corporation of India (PGCI) have approved NS. Productdesigns and technical standards meet the Indian requirements. Trade and diplomatic relations between Nepal and India have improved. Another reason for investment in Nepal had been the labour cost advantage compared to India. Ifthe industrial labour pool is trained systematically, productivity could also be increased further inNepal. However, increased conflicts with workers, political interference, and labour laws, seen asdiscriminatory by employers, have reversed this potential advantage.The following impediments to expanding the export market prevent the company from initiating any majorthrust for export: Aggressive marketing in Indian market has been counterproductive in earlier instances, as it has invitedpunitive and NTBs from Indian authorities through additional duties, imposition of discriminatory NTBslike mandatory registration with the Bureau of Indian Standards, a quota system in case of vanaspatighee, etc. Volatility in international steel markets does not reflect correctly or promptly in neighbouring Indianmarket as the Indian government has significant control and influence over the steel sector. This leadsto increased risk for long-term contracting for exports to India as well as preventing the companiesfrom formulating a long-term strategy for entering the export market. Lack of reliable electricity supply is a major constraint. The operation of machines through diesel generatorsis possible, but it entails heavy investment and high operating cost (Rs20 instead of Rs6-7 per kWh).Quality of Products and Processing Technology: Nepalese steel products are considered to have high qualityand meet international standards. Several factories have undertaken various measures, including ISO 9001certification and training of workers. Such measures have resulted in an increase in productivity in recent years.NEPAL TRADE INTEGRATION STRATEGY 2010BACKGROUND REPORT75