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Thursday, Apr 04, 2002

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Steel industry: No relief in sight sans zero duty coking coal import

Rabindra Nath Sinha

KOLKATA, April 3

THE Finance Minister, Mr Yashwant Sinha, may have conceded in his Budget for 2002-03 that the steel industry merited relief as it has been "affected by the slowdown in demand and has suffered large losses". But what Mr Sinha has actually given adds up to virtually nothing when judged by the industry's suggestions and expectations of relief, say in excise duty on steel and customs duty on imported raw materials.

A case in point is the import duty on coking coal, which is required by the main producers for making metallurgical coke, which is charged into blast furnaces. For the main producers, dependence on low ash coking coal imports has gradually increased over the years, as domestic coking coal, which has substantially higher ash content, does not meet their requirements.

Moreover, the domestic sources can meet only a part of their needs.

Ever since the Union Government recognised some two decades ago the main producers' case for using low ash imported coking coal, imports have surged year to year to reach 10 million tonnes (m.t.) from well below 1 m.t. in the initial years. Currently, coking coal import is subject to a basic customs duty of 5 per cent and with other elements, the total import duty works out to 9.29 per cent.

The f.o.b. price of imported coking coal rose in the past year or so to $45 plus from $37. According to informed sources, the suppliers in Australia, which is a major source of low ash coking coal, have indicated a mark-up of $2-3 per tonne for fresh contracts to the Japanese buyers.

The price negotiated by the Japanese steel mills usually becomes the benchmark for other importers, including India.

The demand for higher price will appear to be somewhat incongruous as the world steel industry has been witnessing slack demand; but reports indicate that the Australian coking coal mining sector has witnessed a degree of consolidation in recent months and, therefore, the suppliers there are trying to exercise their new found bargaining power.

It is against this backdrop that the main producers strongly feel that the Finance Minister should enable them to bring down their cost of steel production by exempting coking coal imports from customs duty.

Exemption will mean a saving of an estimated Rs 280 per tonne of coking coal imports.

The saving, for example, for Steel Authority of India Ltd whose annual coking coal imports are placed at 6.5 m.t., will work out to over Rs 180 crore and it is bound to stand it in good stead as its finances are in a bad shape.

Finances of Rashtriya Ispat Nigam Ltd (Vizag Steel Plant), which has considerably improved its performance in the past two years, will look up further.

Exemption will also make a worthwhile difference to the profitability of Tata Steel.

Apart from the increase in the international prices of coking coal, their outgo on account of imports has gone up substantially as the rupee has been weakening for quite some time.

In these circumstances, imported coking coal has become costlier than domestic coking coal, despite mark-up in its prices from time to time.

Even full exemption for imported coking coal from customs duty, it is argued by them, should not cause injury to the domestic producers as the share of coking coal in their total coal output is only 5-6 per cent.

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