The Finance Ministry’s move to levy export duty on iron ore and steel while reducing the import duty on coal, ferronickel a key input for steelmakers, is expected to rein in the galloping steel prices in the domestic market and the resultant inflation.
The move will bring some respite to manufacturing industries like automotive, consumer electronics and construction, where high steel prices have squeezed corporate margins and hurt consumer demand due to price hikes.
However, the move may not enthuse steelmakers who tend to make higher margins on exported steel.
“This (export) duty will impact steel exports,” said a senior steel industry. About 15% of the flat steel made in India is exported. A 15% export duty on flat steel will make Indian steel pricier abroad, thus forcing steelmakers to sell more locally.
The government has levied a 15% export duty on several steel intermediates like flat-rolled steel and bars and rods, which are consumed by the manufacturing industry. Iron ore will attract a 50% export duty. Meanwhile, import duty on inputs for the steel industry like coke, coal and ferronickel has been reduced to nil.
The government expects this to reduce the price of domestic steel and improve its availability in the local market.
Manufacturers have been lamenting the runaway inflation in steel prices over the past year. For example, RC Bhargava, the chairman of the country’s largest carmaker Maruti Suzuki NSE 2.46 % said that high input costs were one of the reasons that have made cars expensive, pricing many consumers out of the market.
The small car market, which is the ‘bread and butter’ for Maruti Suzuki India NSE 2.46 %, was shrinking, and the ‘butter’ from the segment had gone away with only bread left now, he said Friday.
Meanwhile, steelmakers have been cashing in on the high commodity price cycle over the past year. Steel companies have leveraged the ‘supercycle’ to mend their highly leveraged balance sheets and invest in capacity expansion.
www.ferroalloynet.com
