Export duty may hit steel cos in long run

MUMBAI: Finance Minister P Chidambaram’s imposition of export duty on steel has evoked mixed reactions. While the user industries feel the proposed export levy will pull down the prices of the metal in the domestic market, steel makers think the measure will be counterproductive and will affect the industry in the long run.

Executives of leading steel companies told ET that they have to honour the long-term export commitments with their overseas customers and, therefore, won’t be able to reduce supply in the international markets.

“It will only squeeze better realisation of domestic steel companies, which have been hard-hit by the rise in raw material costs in international markets. In addition, there are certain items, especially in flat products, which have few takers within India,” said an executive of a top steel company who did not wish to be named.

Exporters enjoy a premium of nearly $200 a tonne in the overseas market over the domestic industry.

Mr Chidambaram on Tuesday announced a 15% export duty on primary steel and HR coils and 10% duty on CR coils. However, customs duty on pig iron, sponge semi-finished HR coils, angel shapes has been cut from 5% to nil. He also announced abolition of customs duty on basic steel-making inputs like metcoke, ferro-alloys and zinc, as well as the countervailing duty on construction products like TMT bars.

An official of a real estate company said steel prices should come down on two counts. One, the basic principle of economics suggests that the measures would increase supply of steel in the domestic market and thereby create pressure on rising steel prices. Two, the measures will make metcoke prices cheap and thereby, will reduce the raw material cost.

Responding to this, an official in a steel maker said the proposed abolition of customs duty on metcoke will make the raw material cheaper by $25 per tonne. Coke prices have gone up to $300 a tonne from $96 a tonne in a year. So the impact will be negligible.
“Also, Indian steel makers are supplying to the world market after feeding the domestic market. Even if the entire export comes to a halt, it will have no impact (on the domestic prices),” he said. Last year, India produced nearly 60 million tonne of steel, exported 4.2 million tonne and imported 5.99 million tonne.

J Mehra, CEO of Essar Steel Holding said unless the government takes some long term measures such as facilitating additional capacities, steps like the one taken on Tuesday could be counter- productive.