Domestic Steel Industry Hit By Moving Train Post Govt’s Duty Measures: ICRA

The ICRA said that almost 95 per cent of finished steel export basket in India has been ‘hit by a moving train’ with 15 per cent export duties that have been levied by the central government.

ICRA Limited (formerly Investment Information and Credit Rating Agency of India Limited) is an independent and professional investment Information and Credit Rating Agency.

“The steel industry has been ‘hit by a moving train as government cracks the whip and imposes export duty to reign in elevated prices. Almost 95 per cent of India’s finished steel export basket has been hit with 15 per cent export duties,” it said in a statement.

It said though raw material prices could also moderate as import duty on coal and coke has been waived and availability of domestic iron ore could improve following an increase in export duty on 58 per cent and above Fe grade iron ore from 30 per cent to 50 per cent, steelmakers could see spreads sequentially contract by USD 75-100 MT in Q2 FY2022.

“The imposition of the 15 per cent export duty would make exports significantly less attractive going forward, which in turn could exert pressure on domestic steel prices and industry capacity utilisation levels,” ICRA stated in a statement.

“We believe that export of semis, which declined by 26 per cent year-on-year (Y-o-Y) in FY2022 to 4.9 million tonnes (MT) is likely to witness a significant increase in the current fiscal,” it added.

Commenting on the industry trend, Jayanta Roy, Senior Vice-President and Group Head, Corporate SectorRatings, ICRA said, “In FY2022, Indian mills recorded a 25 per cent Y-o-Y growth in finished steel exports as they took the benefit of elevated seaborne prices. Europe, Vietnam and the Middle East were the three largest destinations for Indian steel exports, together accounting for around 50 per cent of India’s overall steel exports, including semis.”

“We believe that many of these destinations would become less attractive now as mills evaluate the economics of a higher duty. Additionally, with steel export offers for deliveries to Europe being higher by 10-11 per cent over more competitive markets like South-East Asia and the Middle East, the adverse impact of the new export duties on steel exports to Europe would be relatively less severe than that of South-East Asia and the Middle Eastern markets,” Roy said.

On the raw material side, the government has increased the export duty on 58 per cent and above Fe grade iron ore fines and lumps from 30 per cent to 50 per cent.

Though this is incrementally positive from the perspective of better availability of domestic iron ore, it may not be a material shock-absorber as it affects the economics of only less than 15 per cent of total iron ore that was exported by domestic miners in FY2022.

According to the press note, over 86 per cent of the iron ore exported by miners in FY2022was in the below 58 per cent Fe grade category, which anyway has limited use in domestic steelmaking without further processing through beneficiation.

On the coal front, the Government has withdrawn the 5 per cent and 2.5 per cent import duties on coke and coal respectively, which is also marginally positive.

Meanwhile, hailing the decision of reduction in central excise duty on petrol and diesel, reduction in import duty on the raw material of steel and plastic and increase in export duty on iron ore and steel intermediates, A.Sakthivel, President, Federation of Indian Export Organisations (FIEO) said that these measures will bring down the domestic prices of key inputs thereby softening inflation.

He said this will also add to the competitiveness of the manufacturing and export sector and will further push value-added exports from the country.

“These proactive measures will also ease the logistics pressure and bring down the freight bill of the country as in some cases the same raw material was being exported from the country and subsequently being imported by the downstream users,” Sakthivel added.

However, he added that similar measures need to be taken for some of the textile inputs as the rising prices are making it extremely difficult for exports of the value-added apparel sector to meet the increasing competition. Export Duty on Cotton and duty-free import of Cotton Yarn will help in the domestic availability of these inputs at a competitive cost.

Finished Steel Consumption

According to the India Brand Equity Foundation (IBEF), India’s finished steel consumption is anticipated to increase to 230 MT by 2030-31 from 86.3 MT in FY22 (till January).

As of October 2021, India was the world’s second-largest producer of crude steel, with an output of 9.8 MT.  In FY22, crude steel production in India is estimated to increase by 18 per cent, to reach 120 million tonnes, driven by rising demand from customers.

Steps Taken By Government

Government has taken various steps to boost the sector including the introduction of National Steel Policy 2017 and allowing 100 per cent Foreign Direct Investment (FDI) in the steel sector under the automatic route.

The Policy 2017 aims to increase the per capita steel consumption to 160 kg by 2030-31. The Government has also promoted policy which provides a minimum value addition of 15 per cent in notified steel products covered under preferential procurement.

According to the data released by Department for Promotion of Industry and Internal Trade (DPIIT) between April 2000 and December 2021, Indian metallurgical industries attracted FDI inflows of USD 16.1 billion.