The Hindu Business Line : Steel pipe makers gain on withdrawal of export tax

The withdrawal of the export tax levied on domestic steel pipe and tube makers by the Government has brought much cheer to companies such as Welspun Gujarat Stahl Rohren and Jindal Saw. These companies had suffered sharp declines in stock price following concerns of a likely contraction in margins when the Government had last month imposed an export duty of 10 per cent.

Margins to remain healthy

In the interim period between the imposition of export tax and the recent withdrawal of it, both Welspun Gujarat and Jindal SAW had suffered severe downgrades in their earnings outlook. This was based on the reasoning that these companies, which operated in a highly global competitive scenario, would find it difficult to pass on the impact of higher taxes to their clients. The recent withdrawal of the export tax does away with these concerns.

However, there could be a temporary dip in earnings in the current quarter since the export tax was applicable in the interim period. The extent of the dip would depend on the quantum of exports carried out in that period by each company.

Considering that steel pipe companies import most of their steel requirements and would have had little to do with the tight supply of steel in the domestic market, the withdrawal of export tax does not come as surprise.

It however bears attention that while the Government has removed the export tax on flat steel products; it has raised the duty on long steel products by 500 basis points to 15 per cent.

In an effort to fight inflation, it has further imposed a 15 per cent ad valorem duty on all iron ore exported from India, which is likely to have a negative impact on iron-ore exporter, Sesa Goa.