Customs duty hike on imported steel to benefit steel players

The following announcements have been proposed in the Union budget 2015-16  

Basic Customs Duty on metallurgical coke is being increased from 2.5% to 5%.  

The tariff rate of basic customs duty on iron and steel and articles of iron or steel, is being increased from 10% to 15%.

SAD on melting scrap of iron & steel including stainless steel scrap for melting, copper scrap, brass scrap and aluminium scrap is being reduced from 4% to 2%.  

However, there is no change in the existing effective rates of basic customs duty on these goods.  

Budget 2015: Complete Coverage

Reduce corporate tax from 30% to 25% over the next four years, starting from next financial year.  

Education cess and the Secondary and Higher education cess is proposed to be subsumed in central excise duty.

The general rate of central excise duty of 12.36% including the cesses will be rounded off to 12.5%.  

The Education Cess and Secondary and Higher Education Cess shall be subsumed in the revised rate of Service Tax.

Thus, effective increase in Service Tax rate will be from existing rate of 12.36% (inclusive of cesses) to 14%.  

Efforts on various fronts to implement GST from next year.  

Industry Expectations-Partially Fullfilled.  

Expect customs duty on the long and flat products may be increased to 10% from 5% and 7.5% respectively.  

Budget 2015: Complete Coverage

Expect customs duty on Manganese ore, Chrome ore, Molybdenum ore, Vanadium oxides, Hydroxides and other salts of Oxo metallic Acids (Vanadium Oxides Concentrates and Ammonium Meta Vanadate) may be reduced to nil from the existing 2.5%.  

Expect import duty on coking coal be exempted from 2.5% plus 2% CVD.  

Expect import duty on iron ore may be brought down to zero from the currently levied 2.5%.  

Expect customs Duty on steel grade limestone and dolomite be reduced from 2.5% to nil.  

Expect customs Duty on all key raw materials like Ferro Nickel, Pure Nickel, Ferro Niobium. 

Ferro Vanadium, Ferro Titanium and Ferro Moly (used in the production of stainless steel) be reduced to zero.  

Expect import duty on electrodes and refractory material may be reduced to nil from 7.5% and 5% respectively.  

Expect custom duty on mild steel Scrap and Stainless steel scrap be restored to the original rate of nil from 2.5%.  

Expect excise duty on fabricated steel structure undertaken by PEB/Pre-fabricators at their own premises be reduced from the current 12% to 8%.  

Expect capital expenditure in steel business to be allowed weighted deduction of 150% of the expenditure.  

Expect early resolution of the mining problem.  

Steel should not be a part of free trade agreement.  

Budget impact  

Increase in Basic Customs Duty on metallurgical coke from 2.5% to 5% would negatively impact the sector.  

Stocks to watch  

JSW Steel, Jindal Steel, Tata Steel, SAIL  

Outlook

Union Budget 2015-16 is mildly negative for the steel sector as basic customs duty on metallurgical coke is being increased from 2.5% to 5%.

However the promise to spend Rs 1.25 lakh crore on Infrastructure will improve the domestic demand scenario for the steel sector.

Further the proposed completion of 1 lakh km road will provide impetus to steel industries.

Moreover, with the decision to bring the fiscal deficit down to 3% over the next 3 years, is a move that will definitely create additional benefits for everyone in the long run. 

Clarity and re-assurance in effective implementation of GST by the beginning of 2016 is indeed very encouraging and reassuring step.