Post GST, demand for steel yet to recover

Steel demand in the country is still reeling under the impact of GST, and subsequent slowdown caused in steel-consuming manufacturing sectors.

The current trend is contrary to the expectations that demand will pick up from the December quarter with the revival in rural demand on the back of good monsoon, and Central government employees getting their Seventh Pay Commission arrears.

Traditionally, the steel demand is robust in the second half of the fiscal as the industry starts implementing its capex post-monsoon season. The slowdown in demand comes even as the government is hard-selling some of the stressed steel assets to recover accumulated bad loan of over ₹2-lakh crore.

Seshagiri Rao, Joint Managing Director, JSW Steel, said that contrary to expectations steel demand still remains weak as liquidity in the economy has dried up after the implementation of the GST. Some of the banks, which are bogged down by steel companies’ loan defaults have turned cautious and trimmed their exposure to the sector.

“Based on our long-term relation, we had arrangements with some banks whereby they lend money to our dealers to the extent of goods they buy from us. Despite good track record of these dealers they are not getting loan from banks,” said Rao.

Large corporates are avoiding services of SMEs with no GST registration as the clause makes buyers responsible for the tax of non-GST registered sellers.

Though the tax payable by non-GST registered service provider is pass-through, it increases responsibility of large companies taking their service.

With the domestic demand slowing down, steel companies are relying on exports to off-load their production. Delay in refund of domestic taxes under the duty drawback schemes has also hit steel companies hard.

Last month, Finance Minister Arun Jaitley said the government will clear all the tax refunds on exports by October 18. Some of the exporting steel companies have not received refund since July, said sources in the trade.

If the delay in refund of taxes on exports is not plugged, it will soon shut even the export option for steel companies as the cost of production in India is much higher compared to the competing countries, said an analyst.

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