Ministry of Steel writes to Department of Commerce, DGFT for waiver of export duty on pre-contracted orders

Abhishek Law |Suresh P. Iyengar | | Updated on: Jun 08, 2022

Industry claims over 2 mt contracted but Ministry finds LCs covered for 541,940 tonnes of steel and iron ore pellets

The Union Ministry of Steel has written to the Department of Commerce and the Director General of Foreign Trade seeking relaxation on export duty for steel and iron-ore contracts that were entered into before May 22. However, the Ministry of Steel and the industry are at variance over the quantum of pre-contracted orders to be exempted from fresh export duty.

While the steel industry had submitted to the Centre that about 2 million tonnes of steel were pre-contracted and therefore need to be exempted, the ministry has found that only orders for 541,940 tonnes of steel and iron ore pellet  have letters of credit

The relaxation has been sought for “pre-contracted orders” of steel and iron ore, specially in cases were “irrevocable commercial Letters of Credit” have been opened and “considered favourably”, as per an office memorandum of the Steel Ministry, accessed by BusinessLine.

On May 22, India imposed a export duty on steel, steel-making raw materials and intermediaries ranging from 15 per cent for steel to around 50 per cent on iron-ore (including concentrates) to rein-in inflationary trends and cool domestic steel prices.

Indian steel reported one of its best export years in FY22 to 13.5 mt, up 25 per cent year-on-year.

‘Need transition arrangement’

Post imposition of the export duty, the Ministry received several representations from the domestic steel industry including the Indian Steel Association, Jindal Stainless, Indian Stainless Steel Development Association & Material Recycling Association of India for exemption from export duty for the existing orders and contracts.

Industry bodies and companies claimed that these LCs were issued or sales contracts were executed prior to the date of notification.

In the past, ‘transitional arrangements’ for cushioning the business from shift in policy have been notified, by the Centre. Absence of a cushion would have led to steel mills either cancelling previous contracts (that were entered into before May 22) or “making deliveries at a loss” (since export duty would not be reimbursed by the importing company), industry sources said.

“The Ministry is of the view that the concerns of the industry appear justified in such cases where the Irrevocable commercial LCs have already been opened and may be considered favourably,” the memorandum added.

Steel prices slide

An ICRA report said that almost 95 per cent of India’s finished steel export basket had been hit by the 15 per cent export duty, and domestic steel prices could potentially fall by 10-15 per cent in the coming months as demand enters the seasonally weak monsoon quarter.

Steel prices contracted for this month have crashed to ₹64,000 a tonne from ₹71,000 last month on an expectation of a supply glut. Prices were hovering at ₹76,000 a tonne in April. Interestingly, the excess supply comes amid a forecast of weak demand with the onset of southwest monsoon slowing down infrastructure activities from this month.

Published on June 08, 2022
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