Center considers cutting tariffs on steel

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The steel ministry has already taken up the matter with the finance ministry after receiving multiple industry representations, the people said on condition of anonymity.

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They said the 15% export tax, which was imposed on May 22, could be halved or eliminated on some products. A decision is likely to be made by the end of the month, as more data on the steel market helps the government decide whether the levy should remain in place to support availability in the domestic market.

“Talks are underway about a job review, but a final decision is pending,” said a government official, one of the two above.

The tax reduction or elimination could allow companies to tap into overseas markets when domestic demand has declined.

Businesses worry that a recession in developed markets will dry up export opportunities.

Questions sent to spokespersons for steel and finance ministries went unanswered until press time.

The government imposed the export tax on selected steel products, including pig iron, flat-rolled products of both carbon and stainless steel, ingots, ingots and non-alloy steel, to control rising prices in the domestic market and curb inflation.

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Import duties were also changed for iron ore pellets, with an export duty of 45% being levied, while the export duty on iron ore and concentrates was increased from 30% to 50%.

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“As a result of exports, the domestic price of benchmark hot rolled coils has fallen from a record level of more than 76,000 per tonne in April to almost 55,000 per ton now. In the absence of a major pick-up in domestic demand, steel companies are saddled with rising inventories and threaten to hurt their margins for lack of an alternative outlet,” said a chief executive of a leading private steel producer, who asked not to be named.

“The conflict between Ukraine and Russia opened the doors of European markets to Indian steel producers, but duty has made steel prices uncompetitive. So an excise review will help the sector in general without increasing inflationary pressures on the economy,” he added.

The export tax has already curbed steel exports, which fell from 1.5 million tons in April to just over 500,000 tons in July, while iron ore exports fell 69% over the same period.

However, domestic consumption has not increased and has fallen from about 10 million tons in March to less than 8 million tons per month. Inflationary pressures on intermediates have also eased from the highs reached in April.

The Engineering Export Promotion Council has sent several representations to the government and the finance minister to abolish the export tax on steel products, chairman Mahesh Desai said.

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“Several comments have been made to the Minister of Steel and the Minister of Finance. We also met and discussed this with Minister of Steel Jyotiraditya Scindia. They will probably decide on that soon. We have requested the elimination of export duties, especially for stainless steel, while other major steelmakers in the country want a repeal of import duties on all steel products,” Desai said.

In the first two months of the current fiscal year (before the export tax went into effect), exports of stainless steel flat-rolled products with a width of 600 mm or more increased by 115% to $197 million, while those for “other ingots and rods stainless steel; stainless steel angles, shapes and sections” increased 31% to $182 million. On the other hand, exports of hot rolled ingots and ingots, in irregularly wound coils, of other alloy steels fell 58% to $12.87 million. This has decreased in the months following the imposition of the export duty.

“The excise-driven price correction has improved the availability of steel in the domestic market and reduced inflationary pressures. Domestic steel prices have been found to have fallen by almost a tenth, a trend underlined by the seasonal slowdown in demand. Recently, the industry has asked the authorities for some relief. Let’s see how things unfold if the government can come to a common ground to make it a win-win for both steel producers and consumers,” said Avishek Kumar, managing director of Protiviti member firm for India.

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The government imposed export tariffs on several commodities in May to control price increases and address shortages in the domestic market.

The steel industry exported a record 13.49 million tons of steel in FY22, up 25% from the previous year. The trend continued into the early months of this fiscal year, before domestic demand fell and prices fell.

In July, the government imposed a windfall tax on petroleum products and crude oil to prevent companies from making super profits at a time of rising oil and product prices worldwide. The tax has since been revised twice in biweekly reviews. This has raised hopes that such a trend revision of duties will be repeated in the steel industry as well.

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