Major steel stocks hit the lower circuit on Monday's trade after the government-imposed export duties. This may prompt steel companies to review massive capacity expansion plans. In a bid to curb inflation the Ministry of Finance on Saturday decided to impose hefty export duties on crucial steel-making raw materials like iron ore and pellets. This is an extremely negative development for the steel sector.
Export duty on iron ore has been increased to 50% across all grades from 30% for lumps, while that on pellets has been imposed at 45% from nil earlier, making exports unviable. Further, the government has imposed a 15% export duty on hot-rolled, and cold-rolled steel products from nil earlier. On the import front, the government has cut import duty on some raw materials like PCI and coking coal to nil from 2.5%, while on met coal and coke and semi-coke from 5% to zero.
To curb the inflationary pressures, the government has decided to levy export duty on iron ore and steel while reducing the import duty on coal, ferronickel a key raw material for steelmakers. This will ease up the steel prices, which will be beneficial to industries like infrastructure and real estate. However, steelmakers will not be happy with the move as their current expansion plans were based on the assumptions of growth in global as well as domestic markets. The 15% export duty on the flat steel will make Indian steel prices less competitive globally and most of the steel producers are not sure whether the domestic market will absorb the extra production. All these factors will force the steelmakers to evaluate their future plans.
India exported 13.5 million tonnes (MT) of finished steel in FY22, compared with 10.8 MT in FY21, while domestic steel consumption stood at 106 MT during the same period, up from 94 MT in FY21. India's iron ore exports stood at 15.3 MT in FY22, while that of iron ore pellets stood at 11 MT.