Prolonged duty on steel offerings may affect supply chains, says Indian Steel Association

Export duty on Indian steel offerings, if continued for a longer period may affect supply chains, especially when the world is exploring a China plus one strategy, said Alok Sahay, Secretary General and Executive Head of the Indian Steel Association.

According to him, in a post-Covid new normal, India emerged strong and was getting to play a bigger role in the global supply ecosystem. Steel mills aggressively priced offerings — which was competitive to China — with exports moving up to 15 per cent as against the normal 10 per cent.

“We emerged strong with the world moving to a China plus one strategy but then the export duty came. So, in a way, it disrupted supply chain relationships Indian mills were establishing ... If the export duty continues for a longer period, then may be we will see some consequences,” Sahay told BusinessLine.

Case for steel exports

Steel demand is growing at 6-8 per cent in India. “This means, we need to generate additional domestic demand for at least 1-2 million tonnes per month, at current capacity levels,” he said.

Representatives of the Indian Steel Association and other industry captains had met Finance Minister Nirmala Sitharaman to apprise her of the proposed investments in pipeline and also on drawing boards, and the need to continue exports. “We are hopeful that there will be a withdrawal of export duty soon, now that there is cooling off in prices in India. It is pertinent that steel exports also generate foreign exchange,” Sahay added.

Steel demand slackened over the last one month with prices of the benchmark hot rolled coil hovering around ₹61,000 per tonne here, down by ₹12,000-15,000 per tonne compared to the ₹73,000-76,000 per tonne range it commanded in April.

Input cost rise

“That 60-day odd period (covering March to early-May) saw steel prices head up due to coking coal price. If you see, by May 22 — when export duty was imposed — Indian steel prices, in line with global prices, were cooling off. Another week or so, prices would have come down further and stabilised,” he said, adding that since February 2022, the Indian Steel Association had reached out to the Centre to look into the volatility of coking coal prices which are pegged to an indexation system.

From the previous lows of $110 per tonne, a year back, the import price of coking coal peaked at $670 per tonne in March 2022. This, on an average, impacted steel-making costs around ₹21,000 per tonne (or around $300 per tonne) increasing the cost of production and consequently affecting steel prices.

Even at the current coking coal price of around $400 per tonne, mills witnessed a cost rise of ₹15,000 per tonne ($200 per tonne). However, at current price levels and slacked demand, mills are expected to face a substantial margin pressure.

Industry capex

According to Sahay, Indian mills have been opting for brownfield expansion, keeping in mind the sector’s long gestation period. While the announced capex will continue, those on the drawing board “may get impacted”. “Many of these plans will remain on drawing board if companies do not see the potential for new demand and are left with additional under-utilised capacities,” he said.

As per CMIE data, new investments announced by the steel sector account for 36 per cent of the total manufacturing capex for FY22, up from the 5 per cent announced for FY18, when the sector was going through its downturn cycle.

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