The Indian government has waived import duties on some key steelmaking raw materials like coal and imposed export duties on iron ore and steel products, aiming to reduce prices despite criticism from the domestic steel industry, SteelOrbis has learned from government and industry circles.
The new duty regime has come into effect as of the night of May 22, according to a government notification.
Aiming to rein in surging inflation with wholesale inflation touching 15.08 percent, the government has reduced import duty on ferro-nickel and coking coal from 2.5 percent to nil and on coke and semi-coke from five percent to nil, to bring down the cost of production of steel mills and thereby soften finished product prices.
Also, presumably to increase domestic supplies and soften prices under supply-side pressures, the government has hiked export duty on iron ore and concentrates to 50 percent and imposed a new export levy on pellets at 45 percent.
A new export duty of 15 percent has also been imposed on pig iron and spiegeleisen in pigs, blocks, or other primary formats; non-alloy flat rolled products of different kinds, including hot rolled, cold rolled, plated and coated; bars and rods, and stainless steel.
Announcing the new custom duty regime, finance minister Nirmala Sitharaman said, “The levies are being cut on raw materials and intermediaries where import dependence is high and this will result in reduction in cost of final products.”
Consequences of export duties for Indian mills
The domestic steel industry, while welcoming the waiver of import duties on raw materials, is critical of the move to impose export duties on steel products.
“Indian steel companies will be forced to cancel export contracts with EU buyers after the overnight decision to impose export tax on finished steel products,” V R Sharma, managing director of Jindal Steel and Power Limited (JSPL), said.
“The government should have given us two to three months. We did not know about such a substantial policy change,” he said.
He said that Indian steel mills have about 2 million mt of pending orders mostly to Europe, which are stuck at ports or in various stages of production, and the policy change could possibly lead to force majeures, and customers have done no wrong and does not deserve to be treated this way.
He said JSPL itself has pending export orders of 260,000 mt, which had been booked when there was no export duty.
According to JSPL’s estimates, the Indian steel industry will lose an estimated $300 million from the decision to impose export duty on ongoing supply contracts.
“Whatever is not customs-cleared will have duty. This is a disaster,” another large private steelmaker told SteelOrbis, adding that, before assessing the effect for the future market, suppliers will have to understand what to do with already booked material for May, June and July shipment.
Capacity expansions may be frozen
A number of officials in key domestic steel companies said that planned capital expenditures of mills would be reworked or scrapped as such investments were based on revenue realization from a mix of domestic and overseas sales projections, which have gone haywire now.
JSW Steel Limited managing director, Seshagiri Rao, said that, if exports of 18 million mt become uncompetitive in the global market, the domestic market cannot absorb the additional volume and the industry has to shut down capacities and a serious review of the expansion plans of each company in the industry is imminent.
He said that India’s steel consumption was 105 million mt and exports of 18 million mt in 2021-22, with capacity utilization at a healthy 80 percent, and mills had planned capacity expansions based on both local and global requirements. But with exports rendered uncompetitive by imposition of the export tax, such expansion plans have been jeopardized.
The Indian Steel Association (ISA) the apex representative body of domestic steel companies, said, “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. India has been increasing its engineering and steel exports over the last two years and has the potential to become part of a larger global supply chain.”
“India may lose export opportunities now and this decision may also impact the overall economic activity in the country. Also, the imposition of export duty will help other countries to increase their share in the global market, which India will vacate. Rebuilding the lost ground may take a very long time, as the supply chain will be disrupted, while India’s credibility as a reliable exporter will take a hit,” the ISA said.
Ex-India steel exports to be hit hard, but not to stop
In the official list of products on which duties are imposed are the main finished steel products, but semi-finished steel (which has HS code of 7207 in India) has not been included in the list. As a result, market sources believe that some flat steel producers may increase slab sales to slightly compensate for the loss of the share in the HRC/CRC/HDG markets. Also, billet exports will not be affected, though the hike in export volumes in the current conditions are not predicted, at least in the near future, taking into account the not very attractive prices in the international market. “Indian mills [state-run] are seeking $650/mt FOB or higher. I don’t think this is workable here [in SE Asia],” an international trader said. “When their local [rebar and billet] prices fall, then we may see some more competitive offers on exports,” another source told SteelOrbis.
Most market sources agree that sales of finished steel from India will be reduced under the current conditions, but again they will continue in some volume. “The crucial point is whether the Indians will add 15 percent to prices or will assume a 15 percent loss in margins themselves,” a source told SteelOrbis. Over the past fıscal year (ended March 30, 2022) the EU was the main buyer of Indian finished steel with a total 2.38 million mt sold to Italy and Belgium. Finished steel shipments to Vietnam were 1.7 million, while those to the UAE came to 1.3 million mt. HRC is the principal exported item of finished steel for India. Market sources believe that sales to Europe will continue and that Indian mills will have to assume the share of the duty in prices (at least partly) themselves, while shipments to Vietnam will remain absent as prices in this market are already low and Indian producers were not active in sales there over the past few months.
“There are too many alternative players in the market and they may compensate for the shortage in case of any,” a Turkish source commented, doubting the possibility of a sharp increase in HRC prices in the global market in the near future.