Centre mulls slashing steel export duty
4 min read . Updated: 05 Aug 2022, 11:33 AM IST
PremiumLikely move will help firms tap overseas markets when local demand has dampened
NEW DELHI : The Union government may reduce or eliminate the export duty on steel products amid falling prices and rising domestic supply, two people familiar with the matter said, after a similar decline prompted a duty cut on petro products.
The steel ministry has already taken up the matter with the finance ministry after receiving multiple industry representations, the people said on the condition of anonymity.
They said the 15% export duty, imposed on 22 May, might be halved or entirely abolished for some products. A decision is likely by the end of the month, as more data on the steel market helps the government decide whether the duty needs to continue to support availability in the domestic market.
“Talks on a duty review are ongoing, but a final decision is still awaited," said a government official, one of the two cited above.
The duty reduction or removal may enable companies to tap overseas markets when domestic demand has dampened.
Companies worry that a recession in developed markets will dry up export opportunities.
Queries sent to the spokespeople for steel and finance ministries remained unanswered until press time.
The government imposed the export duty on select steel products, including pig iron, flat-rolled products of both carbon steel and stainless steel, bars, rods and non-alloyed steel, to check rising prices in the domestic market and rein in inflation.
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Duty changes were also made for iron ore pellets, where a 45% export duty was imposed, while the export duty on iron ore and concentrates was raised from 30% to 50%.
“As a result of the export, the domestic price of benchmark hot-rolled coils has fallen from a record level of over ₹76,000 per tonne in April to just about ₹55,000 per tonne now. In the absence of a big pickup in domestic demand, steel companies are saddled with rising inventory and face the prospect of hurting their margins in the absence of an alternate outlet," a top executive at a leading private steel maker said, asking not to be named.
“The Ukraine-Russia conflict opened the doors of European markets for Indian steelmakers, but the duty has made steel prices uncompetitive. So a duty revision will help the sector overall without adding to inflationary pressure on the economy," he added.
The export duty has already restricted steel exports, which have fallen from 1.5 million tonnes in April to just over 500,000 tonnes in July, while iron ore exports have fallen 69% in the same period.
However, domestic consumption has not increased and has fallen from about 10 million tonnes in March to less than 8 million tonnes a month. The inflation push on semi-finished steel has also eased from the highs achieved in April.
The Engineering Export Promotion Council has sent several representations to the government and the finance minister to remove the export duty on steel products, chairman Mahesh Desai said.
“Several representations have been made to the steel minister and finance minister. We have met steel minister Jyotiraditya Scindia also on this and discussed this. They are likely to decide on that soon. We have requested the removal of export duty, particularly for stainless steel, while other key steel manufacturers in the country are seeking a withdrawal of duty on all steel products," Desai said.
In the first two months of the current fiscal year (before the effect of export duty set in), exports of flat-rolled products of stainless steel of a width of 600 mm or more jumped 115% to $197 million, while that for “other bars and rods of stainless steel; angles, shapes and sections of stainless steel" rose 31% to $182 million. On the other hand, exports of bars and rods, hot-rolled, in irregularly wound coils, of other alloy steels fell 58% to $12.87 million. This has dropped in the months following the export duty imposition.
“The duty-driven price correction has improved the availability of steel in the domestic market and softened pressure on inflation. It has been observed that domestic steel prices have fallen by almost a tenth, a trend underscored by the seasonal slowdown in demand. Recently, the industry has made representations to the authorities for some relief. Let’s see how things unfold as the government may reach a common ground to make it a win-win for both steelmakers and consumers," said Avishek Kumar, managing director, Protiviti member firm for India.
The government imposed export duties on several commodities in May to check price rises and address shortages in the domestic market.
The steel industry exported a record 13.49 mt of steel in FY22, an increase of 25% from the previous year. The trend continued in the early months of this fiscal year before domestic demand fell and prices slipped.
In July, the government imposed a windfall tax on petroleum products and crude oil to prevent companies from making super-profits at a time of soaring oil and product prices worldwide. The tax has since been revised twice in fortnightly reviews. This has raised hopes that such trend-based duty revision may be replicated in the steel industry as well.
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