Hike customs duty on steel products, govt urged

Considering rising dumping of steel into India, steel sector seeks hike in customs duty on steel and steel products from 5% to 15%, and hike export duty on iron ore.

Current status

The iron and steel industry in India consists of integrated steel plants based on BF-BOF route, units based on BF-BOF routes, main producers based on EAF/EOF, COREX, mini steel plants and stand alone finished steel producers i.e. re-rolling units, HR coil units, cold rolling units, GP/GC units, colour coated units and tin plates. Besides there are units of pig iron, sponge iron, steel wire drawing, alloy and special steels, stainless steel and ferro-alloys. 

The domestic steel Industry has seen an up tick seen in demand. The scenario during the quarter end Mar'09 was remarkably better as compared to quarter ended Dec'08. This pick up in demand could be attributed to the improvement in the general economic situation, due to the fiscal and monetary measures taken by the government and RBI. The Industry also started the FY'10 on a positive note.

For the quarter ended Mar'09 the Aggregate Sales of 72 Steel companies stood at Rs 29382 crore, which was marginally higher by 1% when compared with corresponding previous quarter last year. However the Aggregate OPM decreased by 750 basis points to 14.1%. The subsequent Aggregate Operating Profit for the quarter under review stood at Rs 4138 crore, which was 34% lower when compared with quarter ended Mar'08 figures. The resultant Aggregate PAT for the quarter under review stood at Rs 2218 crore, which was 39% lower when compared with quarter ended Mar'08 figures.

Industry expectation

The steel Industry seeks hike in import duty on certain steel products from 5% to 15% so as to keep a check on dumping from countries like China and Ukraine. The industry is also hopeful of a hike in export tax on iron ore. At present, there is no export duty on iron ore fines while shipments of iron ore lumps carry a levy of 5%.

Analysts/market expectations

It is expected that the import duty could be increased so as to protect domestic industry. The recent move by China to give a 9% rebate on steel exports may also strengthen the case for an increase in import duty.

Stock to watch

Tata Steel, SAIL and JSW Steel.

Summary

The Union Budget 2009-10 is likely to be positive for the steel sector, in terms of thrust on infrastructure, housing etc and fiscal benefits for other user industries like capital goods, auto and auto ancillaries etc.  But it will be bestowed with added cream, if the customs duty on steel products is hiked and if the export duty on iron ore is increased.