There has been no commitment yet from the Indian finance minister, Nirmala Sitharaman, on the revision or rollback of the recently-imposed 15% export duty on steel. However, the minister gave a “very patient, sympathetic hearing” to industry representatives who met her recently regarding the same, SteelMint has learnt from reliable industry sources.
As a result, the industry is hopeful the finance minister could take a relook at the export tax in the near to medium term.
Recently, a high-level steel delegation, led by the Indian Steel Association (ISA), met finance minister Nirmala Sitharaman to apprise the government of the impact of the export duty on the industry.
What was discussed?
Industry sources closely aware of the development, informed that the delegation apprised the minister of the “pain points” relative to the duty imposition.
A source informed, the communication was verbal and that there was “no commitment of rollback of the duty from the minister”.
Another industry source close to the developments said: “We did not exactly seek an immediate roll-back of the export tax. The meeting was held essentially to highlight the steel industry’s ‘position’ in the economy and to seek a ‘consideration’ of the export duty.”
“We apprised her about the choices left before the mills. The inventory build-up, for instance. Last year, Indian exports touched around 20 million tonnes. Does the domestic market have the capacity to absorb 20 mnt? Mills will have no option but to cut production,” added the source.
It was also highlighted that around 36% of investment in total manufacturing comes from steel. If steel related investments are put on hold, even temporarily, this may not augur well for revival of the economy.
Other ‘points’ industry keen to highlight:
Industry sources, meanwhile, told SteelMint, while measures to address inflation are appreciated, some key points need to be highlighted as reasons for seeking a rollback of the export tax.
- Indian steel has a pivotal role in the country’s economic development constituting 60-65% share in infrastructure and construction, 20-25% in general engineering and capital goods, 10-12% in automobile and appliances along with special steels for the Indian Defence sector.
- Indian steel prices are a reflection of global steel prices with a strong correlation of 0.97 with import and export parity. Indian domestic steel prices have remained lower than most countries, including Europe, the US, Turkey, Brazil, Japan – indirectly making exports of engineering goods globally competitive.
- Global steel prices across most economies peaked in March-April, 2022 followed by a steady downtrend. Indian HR prices followed the global downward trend and reduced from the peak of INR 77,000/t in April 2022 to around INR 68,000-69,000/t before the imposition of the export tax on 22 May, 2022, and continued to reduce further to around INR 62,000/t by 15 June 2022.
- “Therefore, Indian steel price recorded a price reduction of around INR 15,000/t between April and June, with the current month’s levels at INR 62,000/t, even lower than the INR 63,500/t prevailing in April 2021,” highlighted an industry source.
- On the other hand, coking coals price did reduce from the peak of $670/t FOB Australia in March-end but have continued to remain elevated at $377/t in June 2022 or almost 4-times the price that prevailed in April 2021, of $110/t.
Thus, the Indian steel industry is saddled with high-cost inventory of coking coal (average inventory levels of two months), which, coupled with declining steel prices, are exerting pressure on margins. - China could enter the export markets that were painstakingly built by Indian steel exporters over the last couple of years.
- The export tax has affected export orders pre-contracted before 22 May, 2022, including orders with letter of credit (L/C) and/or advance payment.
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