Rising iron ore and coking coal prices are the main concerns for steel companies.
Budget 2011 hiked duties on export of iron ore by companies such as NMDC Ltd and Sesa Goa Ltd.
Also see | Budget impact on sectors (PDF)
The new duty will be 20%, against an earlier 15% export duty on iron ore lumps and 5% export duty on iron ore fines.
The hike in duty will squeeze margins on exports by iron ore companies. However, since India is a major supplier in the global iron ore market, international spot iron ore prices are likely to rise, which would provide some relief.
The export duty hike could increase supply in the domestic market. Steel companies will benefit if domestic ore prices trend lower.
Another positive is that export duty on ferro-nickel has been halved to 2.5%, lowering their production costs.
Other factors affecting the sector are a higher proportion of captive raw material sources that will lead to better profitability; domestic coal costs to rise, after Coal India Ltd’s recent price hike; capacity expansions to drive volume growth in next few years.