Duty cuts
Import duty on primary and secondary non-ferrous metals cut from 10 to 7.5 per cent
Restoration of 5 per cent duty on import of steel melting scrap
Reduction of duties on ores and concentrates from 5 to 2 per cent

Radhika Kamath

The reduction of Customs duties on primary and secondary non-ferrous metals from 10 to 7.5 per cent is unlikely to affect the pricing power of companies such as Hindalco, Sterlite Industries, National Aluminium and Hindustan Zinc.

The firm international price trends in these metals will continue to offer them headroom to keep the domestic prices at current levels.

The reduction is, however, likely to restrict the scope for a hike in domestic prices. The price differential between landed costs and domestic prices has narrowed to about 3 per cent from over 10 per cent a year ago, thus leaving very little scope for price hikes by domestic players.

Indirect impact

The budgetary measures to boost investments in rural development, road infrastructure and power are expected to have a positive impact on the steel sector.

Despite the lack of any specific measures to boost its prospects, the steel industry can hope to reap the indirect benefits of the boost to investment in the core sector.

On the other hand, the steel industry is unlikely to be disturbed by the reduction in Customs duty on alloy steel in the near term.

Steel prices, even after witnessing a cool off by about 25-30 per cent from their historic highs in early 2005, have recovered partially and still remain above the long-term average level.

However, competitiveness with imports could be under threat in the long-term.

The restoration of import duty of 5 per cent on steel melting scrap is unlikely to have an impact on the steel industry as a large number of steel makers use sponge iron.

This may, however, be viewed as a disincentive to trade in scrap in the open market.

On the raw materials front, the Finance Minister has sought to amend the definition of captive consumption so as to allow coal mining by producers with firm supply contracts with steel companies (cement and power being others).

This is unlikely to help domestic steel producers who continue to import a large portion of coal, as coal available in domestic market fails to meet their quality standards.

(This article was published in the Business Line print edition dated March 1, 2006)
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