Steel: Budget moves expected to trim cost curve

The Centre has so far handled the debt-ridden steel companies with soft gloves and expectations are that it would continue further in the Budget to make them more sustainable without government support.

Despite adopting the latest technology, the cost of steel production in the country is among the highest due high incidental cost such as royalty and cess on iron ore and coal mining, and creaking infrastructure.

Freight rates in India are highest, with logistics cost adding up to 13-15 per cent of the final product price.

A tonne of steel moved from Shanghai to Mumbai costs $12, while the same from Odisha to Mumbai will cost about $55. The Ministry of Railways needs to progressively bring rates down to the average global levels, said a steel company official.

The industry expects the Centre to embark on a major plan to enhance domestic coking coal production by allowing more private companies in mining. This would make domestic steel companies turn more cost competitive and less vulnerable to volatility of global market.

India has proven reserves of 18 billion tonnes of coking coal, while the current annual production is just 60 million tonnes. A major part of India’s coking coal requirement is met through imports compared to China which sources 80 per cent of its requirement domestically. Although the Centre has taken multiple steps to augment coal production, there is still shortage of coal. Steps need to be taken up for speedy allocation of coal linkages to the steel sector.

The industry expects the Centre to withdraw coal cess of ₹400 a tonne, which increases the coal cost by over 25 per cent.

Vishal Agarwal, Vice-Chairman and Managing Director of Visa Steel, said the import duty of 2.5 per cent on coking coal should be removed and the Clean Environment Cess should be made modvatable to improve competitiveness in the steel industry.

Policy measures to boost infrastructure spending and consumer confidence are required, to revive the housing and automobile sector and thus increase domestic steel demand, he added.

Saddled by high incidental cost, the Centre may consider incentives for steel exports, which account for just about 5 per cent of the total production. The industry has the potential to export 10-15 per cent of its production if the government provides export incentives like China.

The Centre needs to extend a helping hand to the steel industry reeling under debt burden, if it is serious about increasing production capacity from 110 million tonnes to 300 million tonnes by 2030.

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