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The government decision to levy export duty of 15 per cent on finished steel and 45 per cent on pellets will hit margins and lead to lower capacity utilisation in the industry, amid high input costs.
The shares of leading steel producers came under heavy selling pressure on Monday, with the BSE Metal index sliding 1,605 points to close at 17,655. JSW Steel and Tata Steel slipped 13 per cent to Rs 548 and Rs 1,024, while Jindal Steel and SAIL were down 17 per cent and 11 per cent at Rs 396 and Rs 74, respectvely. Iron ore mining major NMDC dipped 13 per cent to Rs 128.
Chief Investment Strategist at Geojit Financial Services, V.K. Vijayakumar, said the government’s decision to discourage steel exports and bring down raw material prices are aimed at cooling domestic steel prices.
Metal companies, including the steel industry, have benefited from high prices following the Ukraine war, he said.
“While both steel and non-ferrous companies made supernormal profit in the recent commodities bull-run, the government has singled out the steel sector. Making steel exports nearly unviable will impact cash flows in the industry and derail the plan to achieve 300 million tonnes of steel capacity in India by 2030,” said Motilal Oswal Financial Services report.
India exported about 13.5 mt of finished steel and 5 mt of semi-finished steel last fiscal, while it imported about 4.8 mt of finished steel. The country could turn a net importer of an additional $5 billion in the next four-five years, if further expansion plans are aborted, it added.
Leaving the export of slabs and billets from the ambit of export duty also implies that India retains the corresponding carbon emission, which works against the government target to reduce carbon emission, it said.
Notwithstanding the export duty, steel demand has been on a steep fall due to high prices and expectations of weak economic growth, which are expected to pull down prices in the near future. Domestic steel demand was down 7 per cent in April and is expected to remain soft in May. This has led to hot-rolled coil prices falling 12 per cent in April. The drop in steel price comes even as the price of imported coal remains high. ICRA, in an analysis, said the industry’s operating profits would dip by $75-$100 a tonne in the seasonally weak September quarter.
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