Duty-related measures to cut India's steel exports by 40% in FY23: CRISIL

Jun 21,2022

India's steel exports are expected to come down by 40 percent to 12 million tonnes in the ongoing fiscal due to the duty-related measures taken by the government last month, according to CRISIL.

The export of finished steel had reached a record high of 18.3 million tonnes in the 2021-22 financial year, and the prices were at their all-time high, the agency said on Monday.

On May 21, the government announced waiving customs duty on importing some raw materials, including coking coal and ferronickel, used by the steel industry. Also, the duty on iron ore exports was hiked by up to 50 percent and for a few steel intermediaries to 15 percent.

"India's steel exports will drop 35-40 percent to 10-12 million tonnes this fiscal following the 15 percent export duty imposed on several finished steel products last month. Exports of iron ore and pellets will also fall this fiscal and lower domestic prices," the CRISIL research analysis said.

Steel exports had reached a record high of 18.3 million tonnes last fiscal. However, it will continue to see momentum because of the disruptions caused by the ongoing Russia-Ukraine conflict, and Russia is a crucial exporter of steel, coking coal, and pig iron.

In addition, the European Union's (EU) move to raise India's export quota amid a widening differential between steel prices in the two geographies benefited domestic steel makers and limited the impact of a 25 percent tariff on steel imports imposed by the EU, the report said.

But while steel firms enjoyed fat realizations overseas, domestic demand grew 11 percent yearly, driving domestic prices to all-time highs. This led to soaring construction costs and multiple price hikes by makers of automobiles, consumer appliances, and durables to pass on the increase. The hike in export duty was aimed at curbing this inflation.

Hetal Gandhi, Director, CRISIL Research, said, "The duty-driven price correction will improve the availability of steel in the domestic market as finished steel exports dwindle. This will directly impact India's export volume in the current fiscal. Steelmakers will attempt to skirt the duties by bumping up exports of alloyed steel and billets, but that is unlikely to compensate for the loss of finished steel exports."

CRISIL further said the combined export volume of iron ore and pellets is expected to drop from 26 million tonnes last fiscal year to 8-10 million tonnes in the current one, bringing about a sharp correction in domestic prices. The removal of import duty on coking coal and PCI coal has brought down costs for integrated steel producers, who primarily depend on the import market.

On the steel prices, it said the duty was able to tame the uncapped rally in domestic steel prices. Steel prices (ex-factory), which averaged Rs 77,000 per tonne in April, had already cooled off by Rs 4,000-5,000 per tonne in early May, in line with global prices.

The duty imposition has driven prices down further, as current prices stand close to Rs 14,000-15,000 per tonne lower than the April peak.

Koustav Mazumdar, Associate Director, CRISIL Research, said, "Correction in steel prices was already on the cards as global prices started correcting. The duty revisions have alleviated the uncertainties linked to international markets and set the tone for a quicker correction in the near term. As of mid-June, prices are already at Rs 62,000-64,000 per tonne and can be expected to trend below Rs 60,000 per tonne by the end of the fiscal.

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