India’s steelmakers feel the heat as govt introduces export duty to reign in prices

India’s imposition of a sharp 15% export duty on various finished steel products is a significant negative for the steel sector, which is already going through a period of muted demand and high input cost inflation, ICRA Research said in a note seen on Tuesday.

Steel exports are likely to be far less attractive going forward, which in turn could exert pressure on domestic steel prices and industry capacity utilisation levels, the note said, adding that expansion plans of many steelmakers could be impacted if the duties are maintained in the medium term.

Almost 95% of India’s finished steel export basket has been hit with 15% export duties; typical export destinations like Europe, Vietnam and the Middle East would become less attractive now. Domestic steel prices could, therefore, potentially correct by~10-15% in the coming months, the note added.

“Not withstanding a modest decline in input costs due to a correction in domestic iron ore prices and waiver of import duty on coal, the industry’s operating profits could see a downward correction of US$75-100/MT in the seasonally weak Q2FY2023 compared to the current quarter,” it said.

According to the note, imposition of a 45% export duty on iron ore pellets remains a major dampener for merchant pellet makers.

“With pellet exports accounting for around 15% of the domestic production, asset utilisations are likely to be adversely impacted. Increase in export duty on 58% and above Fe grade iron ore fines and lumps from 30% to 50% is incrementally positive. However, it may not be a material shock-absorber as it affects the economics of only less than 15% of iron ore that was exported by domestic miners in FY2022,” it pointed out.

With the domestic industry’s capacity utilisation levels crossing the 80% mark in FY2022, many steel makers announced expansion plans of around 130 mt for the next decade. However, the pace of execution could slow down as mill cash flows could weaken significantly going forward if the export duty on steel products is maintained over the medium term, the note said.

Leave a Reply

Your email address will not be published.