Indian Govt Ready for a Slash in Import Duty on Steel to Tame Prices

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The government has proposed to slash import duties on steel items, further bringing it to zero or near-zero levels to provide relief to MSMEs, which have been hit hard by the high cost of raw materials amidst the raging pandemic.

Top government sources said that a decision had been taken to review duties on steel products and reduce it or withdraw it completely on a few items to help the user industry hit hard by the rising price of the metal in the domestic market.

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Also, lower import duties would help maintain supply lines that have been affected, with several domestic steel companies reducing steel production to divert medical grade oxygen for Covid-19 relief measures.

In budget 2021-22, Finance Minister Nirmala Sitharaman revoked the anti-dumping duty (ADD) and countervailing duty (CVD) on certain steel products while reducing customs duty uniformly to 7.5 percent on semis, flat, and long products of non-alloy, alloy, and stainless steels from 10-12.5 percent levels earlier. She also brought down import duty to nil on steel scrap to support user industries hit hard by a sharp rise in steel prices.

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These duties may now be withdrawn or slashed further.

“Steel prices continue to remain firm and have also risen further in recent months. It is making operation of several user industries difficult specially in a market disrupted by the pandemic. Cut in import duty will help tame steel prices as the global prices of steel in certain markets are still lower than domestic prices. The measure will also help supply lines of steel if there is any shortage in domestic steel production due to use of another input oxygen by steel makers for Covid relief,” said the official source quoted earlier.

It is expected that duty cuts in steel will be announced shortly by the DGFT after getting the formal nod from the finance ministry. A call has to be taken on whether to bring down duty levels largely from 7.5 percent to 2.5 percent or withdraw it completely for the time being.

Domestic hot-rolled coil (HRC) prices rallied to a multi-year high of Rs 56,000 per tonne in February from Rs 39,200 per tonne in March 2020 as demand improved amid iron-ore supply constraints and high global prices. This has further improved to over Rs 58,000 in April, a jump of over 50 percent in the last 13 months.

With demand for a remaining steel firms and China cutting export incentives to steel makers to support domestic needs, Indian steel prices are expected to move up further. The cut in duty is expected to tame prices in the domestic market while providing competition to domestic steelmakers from traders who secure cheaper metals from abroad.

Steel producers asking for anonymity said that the move to cut import duty would be detrimental to the interest of domestic steelmakers as it could flood the market with cheap and substandard steel being dumped into the country. They said that the steel market is giving indications that the domestic steel sector may turn profitable after a long interval. But duty cuts could change the cycle again.

In the current scenario of a moderation in demand in India due to the second wave of Covid-19 and consequent business lockdowns, Indian steel mills would be able to offload large steel volumes to export markets and still remain highly profitable, according to a recent report from ICRA.

But a cut in duty would squeeze margins and bring a lot of export destined products back into the domestic market.

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