The Chhattisgarh state government has withdrawn rebate on power tariff given to steel industry from 1st Oct, according to steelmakers based in the state.
State government in the month of August 2016 had announced a rebate of INR 1.40 per unit for state owned steel mills in order to support the ailing steel industry. This rebate was initially given for a period of 8 months, which was later extended for 6 months till 30th September 2017.
Chattisgarh is one of the largest steel producing state in the country with an annual crude steel capacity of around 8-10 MnT, mostly made through induction furnace route.
“The government has extended rebate on power tariff during Apr 2017 for the period of 6 months which ends in Sept’17. Though with start of Oct’17 the rebate of INR 1.40/unit, officially have been revoked. This will not only increase the cost of production but also make us noncompetitive as compared to other states “ one of the senior officials from steel association stated.
SteelMint assessed that, post the remove of rebate, the effective power charges in the Raipur, Chhattisgarh Industrial will be approximately INR 6.2-6.3 per unit, which was earlier at INR 4.7-4.8 per unit.
According to the manufacturers, with the increase in power tariff their cost of production to surge approximately INR 1,000-1,500/MT depends on the plant size.
Meanwhile, the Industry participants are assuming, as the producers already running their plants under low margins, this hike in power tariff may force them for production cuts.
Impacts
1. Steel making cost may increase by INR 1,000-1,500/MT (One tonne of billet requires about 800-900 units of electricity).
2. Sponge iron, scrap and pig iron prices may come under pressure if the increased cost can not be passed on to the end user.
3. State based steel mills may curtail production if margins shrink.
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