Export duty on steel, pellets to bleed industry

BL Mumbai Bureau | | Updated on: May 23, 2022

Prices, capacity utilisation to come under pressure, says ICRA

The levy of 15 per cent export duty on 95 per cent of steel exported in the last two fiscal would turn the export market less attractive and bring down domestic prices besides leading to lower capacity utilisation.

The export duty of 45 per cent (from nil) on iron ore pellets remain a major dampener for merchant pellet makers, who had exported 11.5 mt of pellets last fiscal valued at about $2 billion. Also, in the last two years, many steel players enjoyed strong margins due to highly profitable pellet exports, which now appear unviable. Absence of pellet exports from their sales mix would, in turn, further pressurise operating margins in the near term, said ICRA.

Finished steel exports could be hit

Indian mills recorded a 25 per cent increase in finished steel exports last fiscal as they took the benefit of elevated seaborne prices. Europe, Vietnam and West Asia were the three largest destinations for Indian steel exports, together accounting for about 50 per cent of India’s overall steel exports, including semis. These destinations would become less attractive now as mills evaluate the economics of a higher duty.

Jayanta Roy, Senior Vice-President, ICRA, said with steel export offers for deliveries to Europe being higher by 11 per cent over more competitive markets such as South-East Asia and West Asia, the adverse impact of the new export duties on steel exports to Europe would be relatively less severe than that of South-East Asia and West Asian markets.

The increase of export duty on 58 per cent and above Fe-grade iron ore fines and lumps from 30 per cent to 50 per cent will not have much impact in bringing down prices of this key raw material as over 86 per cent of the iron ore exported by miners last fiscal was below 58 per cent Fe-grade category.

With pellet exports accounting for about 15 per cent of the domestic pellet production, industry asset utilisation is likely to be adversely impacted and domestic pellet prices could come under severe pressure going forward, putting at risk the expansion plans of several ongoing merchant pellet projects, he said.

Published on May 23, 2022
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