Moneycontrol PRO
you are here: HomeNewsBusiness

Higher cost impact on infra said to have led to moves to rein in steel prices

The Prime Minister’s Office had greenlit higher duties on export of iron ore and removal of import duties on steel inputs such as coke. Designed to reduce the domestic price of steel and ensure stable supply, the move has led to metal stocks melting down.

May 23, 2022 / 06:09 PM IST
Representative Image

Representative Image

The latest move to reduce steel prices in India came after the Prime Minister’s Office had signalled that consistently high prices may hamper the government's ongoing infrastructure push, people aware of the matter told Moneycontrol.

The Centre hiked the duty on exports of iron ore to 50 percent from 30 percent and imposed 45 percent duty on pellets on May 21 to shore up domestic availability of iron ore. It also removed import duties on crucial raw material for steelmaking such as coking coal, met coal, coke and ferronickel to ensure a flow of inputs when global commodity prices have continued to remain high.

The major changes to the government’s trade policy on iron ore and steel intermediaries over the weekend had been long expected because an inter-ministerial body had been keeping an eye on the rising prices of imported commodities, a senior official said. The latest move was designed to reduce the price of steel in the domestic market and was greenlit at a recent meeting of the body after receiving instructions from the PMO, the official added.

ALSO READ: Taking Stock | Market erases gains to end flat amid volatility; auto shines, metal worst hit

The average monthly price of hot rolled coil (HRC)—a benchmark for flat steel—may have eased from Rs 76,000 per tonne in April but they remained elevated at about Rs 72,500 in May, compared with Rs 66,000 in May 2021 and Rs 35,900 in June 2020, when the Covid-19-induced lockdown was lifted, according to data by SteelMint, a provider of market intelligence for the industry.

Close

“When consumer inflation has already been causing major worry, the all-time high prices of steel, cement and other building materials had attracted the PMO’s attention some time ago since they were increasing the cost of infrastructure creation in the country. While the government was not keen on tinkering with export duties, the situation could not have been let to deteriorate further,” said a senior official at Niti Aayog.

Higher export duties

Apart from iron ore and pellets, the Centre also imposed export duties of 15 percent on steel intermediaries such as flat-rolled products of iron or non-alloy steel and hot-rolled bars and rods, the Central Board of Indirect Taxes and Customs said in a notification on May 21.

In FY22, India exported 13.5 million tonnes of finished steel, up from 10.8 million tonnes in FY21. However, domestic steel consumption had also been rising at a fast clip, touching 106 million tonnes in FY22 from 94 million tonnes in FY21.

Overall, export earnings from iron and steel swelled to $22.9 billion in FY22, up from $12.1 billion in FY21 and $9.2 billion in the pre-pandemic year of FY202. This was mostly due to the current super cycle raising prices, industry insiders said.

As a result of the government’s moves, steel product prices should fall by 10 percent for primary producers, Engineering Export Promotion Council (EEPC) India chairman Mahesh Desai said.

“Rising inflation has emerged as a major headache for policymakers the world over. Persistently high elevated price poses a serious risk to demand and growth. The latest decision should partly neutralise the negative impact of surging raw material prices,” Desai added.

Primary steel product prices will fall by 10 percent for primary producers and 15 percent for secondary steel producers, Desai said. The engineering goods sector accounts for one-fourth of total merchandise exports and has repeatedly requested the government for liquidity support.

The Federation of Indian Export Organisations (FIEO) said these measures will bring down domestic prices of key inputs and soften inflation. This will also add to the competitiveness of the manufacturing and export sectors 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 downstream users,” said A Sakthivel, president of FIEO.

Steelmakers unhappy

However, the Indian Steel Association said steel export duty may result in India losing opportunities after the Covid-led disruption of the previous years.

“Imposition of export duty on steel will only send a negative signal to investors in the steel sector and will adversely impact the sector’s capacity utilisation. Besides, it may have a major impact on the entire supply chain in the long term,” it said.

The ISA, which counts Tata Steel, JSW and ArcelorMittal as members, said the decision may impact the country’s overall economic activity.

Stocks of steel companies and other entities in the metals space plunged in morning trade on May 23 as brokerages downgraded the sector. The S&P BSE Metal index fell 8.33 percent at the end of the day. The ISA further argued that a blow to the steel industry may prove to be a setback for domestic self-reliance.

ALSO READ: Metal stocks melt down as government imposes export duties

“The steel industry in India has made the largest investment commitments ranging from 36 percent to 40 percent of total investments committed by the entire manufacturing sector. In light of this decision, new capacity creation may get impacted as they would be seen as uneconomical, thus affecting the much-awaited investment against PLI (production-linked incentive) scheme for speciality steel,” it said.

The industry body welcomed the removal of import duty on inputs such as coking coal.
Subhayan Chakraborty has been regularly reporting on international trade, diplomacy and foreign policy, for the past 7 years. He has also extensively covered evolving industry issues and government policy. He was earlier with the Business Standard newspaper.
Sections
ISO 27001 - BSI Assurance Mark