The Hindu Business Line : Steel: Firm prices save the day

THE 5 per cent cut in peak Customs duty rate and the removal of the 4 per cent special additional duty is unlikely to lead to a surge in steel imports. While certain grades of longs, cold-rolled and galvanised steel grades will continue to be imported, albeit at a slightly lower landed cost now, the latest round of duty cuts will still not pose a major threat to the domestic steel manufacturers.

In fact, the domestic steel industry was fearing a larger duty cut and has, hence, kept a close tab on the international steel price trends. As yet, the domestic prices of most grades of steel continue to be lower or, in some cases, on a par with the landed cost of steel from overseas manufacturers. Even after factoring in the duty cuts, this situation is expected to continue.

Domestic steel makers could also have some good news in the reduction of Customs duty on coal from 25 per cent to 15 per cent. Going forward, input costs could be marginally lower as a result. The cut in duties applicable to project imports could also help steel makers.

In the meanwhile, automobile manufacturers who are big end users of steel (what with an average car using over 600 kg of steel) could be faced with two issues in the long run. One of them relates to their sourcing sheet metal from domestic manufacturers. Cold rolled steel that goes into the making of body panels for passenger cars is still largely sourced from overseas sources for their superior malleability and dimensional accuracy.However, many of the major auto companies such as Maruti Udyog, Tata Motors and Hyundai Motor India have been sourcing sheet metal from domestic manufacturers during the last two years. Despite the cut in Customs duties on imported steel, this trend is likely to continue in the medium term.For the steel manufacturers, keeping the price of cold rolled steel competitive is a key issue that will enable them to drive up demand from among local car makers. Since most automotive steel is sold through long-term contracts with individual manufacturers, factoring international price trends will not pose a problem.

Eventually, the latest duty cuts may actually end up strengthening the domestic steel industry, particularly since it has come during the current buoyancy in steel prices.