Current Status
India is the third-largest steel producer in the world. In 2015, India produced 91.46 million tonne (MT) of finished steel. Total finished steel production in the country increased at a CAGR of 7.45 percent over FY011–15.
Driven by rising infrastructure development and growing demand for automotives, steel consumption is expected to reach 104 MT by 2017. India’s steel production is expected to increase from 100 MTPA to 112.5 MTPA by FY16 and 300 MTPA by 2025.
The Government of India has allowed 100 percent foreign direct investment (FDI) in the steel sector under the automatic route. Nearly 301 MoUs have been signed with various states for planned capacity of about 486.7 MT.
A new scheme, ‘The scheme for the promotion of R&D in the iron and steel sector’, has been approved with budgetary provision of US$ 24.6 million to initiate and implement the provisions of the scheme as per the 11th Five-Year Plan which has continued in the 12th Five Year Plan. The development of technology for Cold-Rolled Grain Oriented (CRGO) steel sheets and other value-added products is also included under the policy purview and is allocated US$ 6.7 million.
Industry Expectations
- Increase customs duty on the long and flat steel products
Industry demands the basic customs duty on all steel imports to be raised to 25%, from currently Iron & Steel at 10% on Long Products and 12.5% on Flat Products.
In view of the continued economic slowdown in the country which had an adverse impact on the steel sector as also keeping in view the investments undertaken by domestic steel producers in anticipation of an increase in consumption in the country, there is an urgent need to provide protection to the domestic industry. This becomes all the more imperative in view of oversupply in the global market which has led to increased protectionism being resorted to by almost all the countries to protect their local industry.
During April-August 2015, India imported 4.5 million tonnes steel as compared to 2.9 million tons during April-August 2014 registering a whopping 51% growth. Exports, on the other hand, fell by 28%, and were 1.76 million tons against 2.4 million tons in April-August 2015.
- Increase in tariff rate of basic customs duty from 15%
MIP has been imposed for the period of 6 months. Post that, increase in import duty and other
measures would protect the industry from cheaper imports, provided MIP is not extended
- Import 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) to be reduced to zero from the existing 2.5%.
- Reduction in Customs Duty on Coking Coal
Duty on coking coal should be exempted as was the case prior to the Budget 2014-15. Import duty on coking coal was increased to 2.5% in the Union Budget 2014-15.
Import duty of coking coal has been increased to 2.5% in the Union Budget 2014-15. Coking coal is used largely by the steel industry. Negligible quantity of coking coal is available domestically, and thus the need is met mainly from imports. The zero duty on coking coal is in place since 1978. The increase in import duty from zero to 2.5% on coking coal has increased the cost of steel making substantially, leading to domestic steel being uncompetitive vis-à-vis imports. It will
also contribute to inflation.
- Custom duty on metallurgical coke to be reduced from 5% to NIL
Coking coal, Steam coal and Met coke are key inputs in steel making and account for substantial portion of cost of production for Steel. Historically coal used for metallurgical purposes has enjoyed exemption as steel is critical in fuelling India’s growth. Subsequently, due to scarce availability of coking coal technology has been developed to use other coal (non-coking coal including what could be termed as steam coal) for metallurgical purposes through technologies such as COREX. During the period 2012-2013 such coal was exempt but this exemption was subsequently withdrawn.
- Basic Custom duty on LAM Coke be increased from 5% to 10% ad-valorem.
LAM Coke is a value added product and made from Coking Coal at various captive and merchant Coke Oven Plants for onward usage for metallurgical purposes mostly in Blast Furnaces for Steel making. Devaluation of its currency by China has made its imports very cheap and Indian Coke Oven Plants are incurring losses.
- Customs duty on LNG to made NIL
India has a gas based steel manufacturing capacity of 10 MTPA accounting for almost 9% of the total steel manufacturing capacity in the country. These units also represent more than 45% of sponge iron production in the country and are critically dependent on natural gas as feedstock. Although these units have an allocation of more than 7 MMSCMD domestic gas from APM and RIL KG D6 but are currently receiving less than 0.60 MMSCMD gas.
- Import duty on iron ore should be brought down to zero from the current 2.5%.
India is currently faced with a shortage in the production of iron ore, the primary raw material for steel making. The iron ore production in the country has fallen from 218 million tons in 2009-10 to 144 million tons in 2013-14 and 125 million tons in 2014-15.
- Customs Duty on steel grade limestone and dolomite be reduced to Zero from current 2.5%
For Indian steel industry, the cement grade limestone reserves are adequate but the reserves of SMS, BF and Chemical grade limestone are not adequate and are also available in selective areas. Increase in steel production in the country, has led to rising demand for SMS and BF grade limestone. Therefore the limestone imports have been increasing consistently.
- 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
The key ingredients for production of stainless steel include Ferro chrome, Ferro Nickel, Pure Nickel, Ferro Moly etc. These are not available in India and need to be necessarily imported for production of stainless steel.
- Expect import duty on electrodes and refractory material may be reduced to nil from 7.5% and 5% respectively
As there is no sufficient domestic capacity for manufacture of these items and need to be imported, the cost of domestic producers is increased
- Expect custom duty on Stainless steel scrap be restored to the original rate of nil from 2.5%
The Domestic Stainless Steel Industry uses Electric Arc Furnace (EAF) route for manufacture of stainless steel and is, therefore, constrained to use Stainless Steel (SS) Scrap instead of Iron Ore. The bulk of the Scrap requirements of the Domestic stainless Steel producers are met through imports which is procured mainly from countries like Europe, Korea, South East Asia, Central Asia etc.
- Expect excise duty on fabricated steel structure undertaken by PEB/Pre-fabricators at their own premises be reduced from the current 12% to 8%.
The site based pre-fabrication of structurals are permitted to be used in the building / structure without payment of Excise Duty as these are not taken out of the site, the pre-fabrication activities conducted on structurals at outside premises of the pre-fabricated manufacturers are excisable @ 12.5%. This has led to mass fabrication of structurals at the site which do not follow the quality norms as required in structural fabrication and generally done by fabricators having little knowledge of good quality fabrication. On the other hand, the steel structurals fabricated at the premises of fabricators follow state-of-the-art technology and standard operating practices of good fabrication, are priced much higher (after loading Excise Duty of 12.5%) and hence lack orders
- Expect capital expenditure in steel business to be allowed weighted deduction of 150% of the expenditure
Analysts Expectation
Higher allocation to infrastructure spending, will boost demand for steel products. Also any announcement of higher import on steel products, and reduction in import duty on iron ore to be positive for the sector.
Stock to watch
JSW Steel, Jindal Steel, Tata Steel, SAIL
Outlook
India's steel sector is struggling for nearly a year now thanks to dwindling demand from major global players and consumers, including China, on the back waning growth prospects in the world. Couple this with excessive capacity from China, which has lead to dumping of cheap imports into India, along with cheap imports from South Korea and Japan too. In the domestic market, production has been contracting for some time. Any support from the budget to the struggling industry will bring the industry back to life. Steel product demand will get a boost from the current ~4- 5% run-rate if higher allocation is made towards infrastructure spending.
