Government Needs To Rethink Export Duty On Steel, Says JSPL
The government on one hand is declaring PLI scheme for the steel industry, and levying export duty on the other, JSPL MD says.
A 15% export duty on the steel sector “will not be competitive”, according to Jindal Steel & Power Ltd.
“On one hand, the government is encouraging the steel industry to expand capacities and declaring a PLI (production-linked incentive) scheme, on the other hand, it has increased export duty which would discourage exports,” VR Sharma, managing director at JSPL, said in a written response to BQ Prime. “The government needs to rethink and revisit the decision.”
On Saturday, India recalibrated customs duty on raw materials and intermediaries for iron and steel as part of its measures to tame inflation in the country. The government reduced import duty on some raw materials of steel to nil, and levied export duty on some steel products.
Export duty on flat-rolled products at 15% instead of 0% currently.
Export duty on pellets at 45% compared to 0% currently.
Export duty on iron ore at 50% against 30% currently. All grades of iron ore have been brought under the ambit.
Export duty on stainless steel products at 20% compared to 0% currently.
Amit Dixit, assistant vice president (research) at Edelweiss, said that the development is “acutely negative” for the steel sector, already grappling with the lowest spreads in the past 21 months. “This will not only bring down the domestic realisation, but also export realisation—already at a discount of 10%.”
According to Jayanta Roy, senior vice president at ICRA Ltd., flat-rolled products of iron or non-alloy steel, hot-rolled and cold-rolled accounted for almost 59% of total exports in FY22. The levy, he said, will have a negative impact on the capacity utilisation of leading Indian steel companies, since the share of exports in their sales mix has been higher, and a slowdown in exports will affect their production.
“Also, lower exports this year will lead to lower domestic steel prices, unless domestic demand picks up significantly.”
Little Relief
The government has reduced import duty on key raw materials used in steelmaking such as coking coal and coke. The removal of import duty on ferronickel offered some relief to stainless steel producers.
Import duty on coking coal reduced to 0% from 2.5% currently.
Import duty on coke reduced to 0% from 5% currently.
Ferronickel import duty reduced to 0% from 2.5% currently.
Lower duty on coal/coke and export duties on iron ore and pellets will reduce inputs costs and provide a cushion to margins, but the overall impact on steelmakers will depend upon the future trends in input and output commodity prices as well as the extent of vertical integration in their operations, said ICRA’s Roy.
Reducing or eliminating duty on coking coal, Roy said, will bring down the cost of production by only $10/12 a tonne, which is too less.
What JSPL Suggested
The duty imposed should be withdrawn.
If not, the industry should be given at least three months to taper off orders and to supply the orders agreed and signed upon.
Government should look into Coal India Ltd.’s production numbers. Coal India should produce at least 1,500 million tonnes of coal a year against 800 million tonnes now.
BQ Prime’s queries to Tata Steel Ltd. and Steel Authority of India Ltd. didn’t elicit any response, while JSW Steel Ltd. declined to comment.