Export duties on steel may be given a send-off

Steel stocks gain on hopes of tax relief
Steel stocks gain on hopes of tax relief

by 5paisa Research Team Last Updated: Dec 13, 2022 - 05:04 am 22.8k Views
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As of now, there is no official confirmation from the government. But there are now strong expectations building up that the controversial export tax on steel may be finally done with. While it is not clear how the government approach would be, the markets are expecting that there could be a reduction in the rate of export taxes or even a total scrapping of the export tax on steel. Most of the steel companies had protested that such a move would result in their European clients cancelling steel import orders. Exports would suffer.

In a sense, the export of steel had been the low hanging fruit for the Indian government. Putting an export tax at this juncture would only worsen matters for the steel sector as they would be left with surplus steel since the domestic demand was likely to be hit by the high inflation and the recession fears. Effectively, the domestic demand for steel and steel products has remained muted in recent months. In the process, the major steel companies are losing out overseas customers due to the export taxes. Taxes on ores may continue.

The lobby of steel sector representatives who met the Finance Minister last month have not only impressed on her the problems of the steel industry but also apprised on the demand supply situation. The steel companies have told the FM that she should consider, at least, a reduction of the export duty, if not an outright abolition of the impost. The export duty of 15% on steel exports was imposed by the government on 22nd May, to reduce the price pressure in the domestic markets by enhancing local availability through export duties.

There were several products that came under the ambit of export duties in that round. For example, the government imposed export duty of 15% on select pig iron, flat-rolled products of iron or non-alloyed steel, bars and rods as well as flat-rolled products of stainless steel. It also introduced 45% export duties on iron ore pellet. To prevent the export of raw materials from India, the export duty on iron ores and concentrates was raised from 30% to 50% by the Finance ministry. 

In response to the government move to cut export taxes, the prices of steel have already eased in the Indian context. For example, the average monthly price of hot-rolled coil (HRC), the benchmark for flat steel, eased to Rs69,800 per tonne from Rs76,000 per tonne between the months of April and May 2022. In June 2022, this price dropped further to Rs59,800 per tonne showing that the impact may now already be in the price and further pressure on export or availability was not required. 

However, the real trigger to rethink the duties on steel may have come from the sharp fall in steel exports from 1.38 million tonnes to just about 0.68 million tonnes in June 2022. During the same period, the domestic consumption of steel also eased to 8.67 million tonnes from 9.56 million tonnes. In a nutshell, we had a situation wherein the exports of steel were crashing and there was enough offsetting demand in the domestic market. Also, the steel inflation had fallen sharply in May from 18.41% to just about 14.62%.

Regarding the domestic demand for steel, it has started inching up in the recent past, but that too at a very slow pace. The global uncertainty means people would be commitment to large scale investments in a halting manner. With export curbs in place, it has been difficult for companies to cut inventory levels while maintaining the pace of production. The best option for the steel companies at this juncture is to make the best of the export opportunity and the government is also thinking about the problem on similar lines.

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