The enforcement of the new mining cess by some states following the Supreme Court ruling may bring challenges for the domestic steel industry by adding to the cost pressures, according to rating agency ICRA on Tuesday, August 27.
On August 14, the Supreme Court upheld the power of states to levy tax on mineral rights and mineral-bearing land and allowed them to seek refund of royalty from April 1, 2005 onwards.
This development is poised to compress operating margins across the sector, impacting both primary and secondary steel producers, ICRA said in a note.
While margins of the primary steel producers could shrink by 60-180 basis points, secondary producers may face a more severe impact, with margins declining by 80 -250 basis points, based on various scenarios that cess rates could vary between 5-15 percent, ICRA said.
“The enforcement of the new mining cess by key mineral-rich states can heighten cost pressures for the steel industry. While most states have not set the rates yet, any substantial cess implemented could adversely impact margins, especially for secondary steel producers, as the merchant miners are expected to pass on the increased costs,” the rating agency said.