The removal of export duty on steel will not boost shipments in the short term, given the weak global demand amid recessionary trend in most consuming countries.

Steel exports have more than halved in the first seven months of this fiscal, ended October. Finished steel exports dropped 55 per cent to 4 million tonnes (mt) between April and October due to weak demand and the export levy imposed in May.

Contracting trade

In a sign of contracting global trade, India’s exports in October fell below $30 billion for the first time in nearly 20 months. Even more concerning is the sharp contraction in core exports (non-oil and non-gems and jewellery exports) by about 17 per cent year-on-year in October.

Imports moderated to the lowest level in eight months, with a fall recorded in non-oil imports too. The trade deficit remained elevated above $25 billion for the fourth month in a row driven by a sharp moderation in exports.

In a bid to provide a fillip to the domestic steel industry, the government has withdrawn the 15 per cent export duty on steel products. However, profit margins of steel companies have remained tight due to high cost of operations, thanks to a sharp rupee depreciation pushing up imported raw material prices. On the other hand, international steel prices have fallen even as several global steel companies have cut production.

With exports becoming unviable with elevated raw material and energy costs nibbling at margins, the operating profits of the domestic steel industry slumped to a nine-quarter low in the September quarter.

Long-term benefit

Dewang Sanghav, Research Analyst, ICICI Direct Research, said the removal of export duty augurs well for domestic steel players, albeit over a longer term horizon as the global steel demand has turned subdued since May, putting downward pressure on steel prices.

Steel export volumes are likely to pick up notably only when international prices recover as it is muted in the global market currently, he said.

Jayanta Roy, Senior Vice President & Group Head, ICRA, said the much-awaited decision to roll back the export duties comes on the back of domestic steel prices falling 15-20 per cent and finished steel exports contracting by a steep 55-65 per cent year-on-year in the first half of this fiscal.

“We believe that the latest measure will help pull up the industry’s profits from the second quarter lows as companies now get the freedom to explore overseas markets, depending on the pricing environment,“ he said.

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