Export duties could hit steel exports real hard

Finished steel exports may fall

by 5paisa Research Team Last Updated: 2022-06-21T16:00:25+05:30

As Indian government has imposed export duties on steel to restrict exports, the impact is already felt on the total steel exports. In fact, according to a report by CRISIL, India's steel exports is expected to come down by 35% to 40% in FY23. It is likely to fall from the current level of 18.3 million tonnes in FY22 to a range of 10 million tonnes to 12 million tonnes in FY23. This is due to the impact of the export duties, which are likely to compress the exports of steel, especially to the EU region, which had expanded India’s export quotas. 

The export of 18.3 million tonnes in FY22 was at an all-time high amidst elevated prices of steel. To encourage the use of domestically produced steel for domestic purposes, the government gave two special concessions. Firstly, it announced the waiver of customs duty on the import of critical raw materials for steel like coking coal and ferronickel. At the same time, it also hiked the duty on exports of iron ore to 50% and for a few other steel intermediates to 15%. This was likely to make exports more expensive and pull it down.

In addition, CRISIL has also projected that the exports of iron ore and pellets would also fall this fiscal year FY23 due to lower domestic prices. One of the key reasons for the robust export of steel and intermediates in FY22 was the ongoing war in Ukraine. In fact, Russia happens to be a key exporter of steel, coking coal and pig iron. However, due to the sanctions imposed on Black Sea shipments, the global supply had become tighter and hence the prices of a host of commodities including steel as well as other minerals had gone up.

In fact, the spurt in global steel prices had led to surge in demand for steel from India. This had led to widening price differentials and had largely mitigated the impact of a 25% tariff on steel imports imposed by the EU. However, now that the Indian government has imposed the export duty on steel, this advantage is likely to get largely frittered away. Having said that, the government has a very strong justification for this imposition since it was sharply impacting the domestic availability of steel; impacting autos and construction.
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Even as steel companies enjoyed the overly fat realisations from the export markets, the domestic demand for steel had grown by 11%. This had driven prices sky high and the huge export allocation was only worsening matters for India. The soaring price of steel had led to almost unviable manufacturing and operations for industries like construction, automobiles, heavy machinery, white goods etc. The hike in export duty was aimed at curbing this inflation in domestic commodity markets and cooling down prices.
 

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According to the CRISIL report, the duty-driven price correction would ensure better availability of steel in the domestic market as the exports of finished steel dwindle. Of course, steelmakers are likely to try their best to skirt the duties by boosting exports of alloyed steel and billets. However, this cannot really offset the export duty impact. At the same time it will also ensure that the benefits of import duties on critical steel inputs are made available to domestic markets rather than to the global markets

The steel prices had peaked at around Rs.77,000 per tonne in the middle of April but since the duty was imposed the prices have cooled by nearly 20% to around Rs.62,000 per tonne. This is likely to come as a major boost to the domestic steel user industries like automobiles, construction, heavy equipment and white goods. The prices are expected to fall further to below Rs.60,000 per tonne and could fall much sharper if the world dips into a recession. However, that would be a case of the remedy being worse than the disease.

 


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