Export duty roll back to boost local steel companies
The government’s decision to withdraw export duty on certain steel products and key raw materials may bring some respite to domestic steel producers, facing pressure on profitability due to high energy costs, declining steel prices as well as muted demand, said analysts. Globally competitive Indian manufacturers may also benefit in the export markets, analysts added.
“It will be a big sentimental booster to revive steel demand particularly, when global steel demand is on a steep decline," said Seshagiri Rao, joint managing director, JSW Steel, and group chief financial officer.
Even though global demand is softening, pickup in exports will support steel prices in the domestic market, and export of value-added products will add to the profitability of manufacturers, said analysts.
In May, the government had imposed export duty to rein in rising steel prices in India. Prices of commodities like steel had surged due to supply disruptions in the wake of the Russia-Ukraine war, but have been plummeting since. Rising interest rates raised concerns of an impending global recession. Demand from China, the world’s largest consumer of commodities also fell following a massive crisis in the realty sector and covid-led lockdowns across regions.
“Removing export duties on steel imposed six months ago is a timely decision. The global economy is slowing and this is bringing down the demand for steel," said V.K. Vijayakumar, chief investment strategist at Geojit Financial Services.
The Indian steel industry is well placed to increase exports in a price sensitive global commodity environment, said analysts. Tata Steel, JSW Steel and Jindal Steel and Power are set to benefit from this decision, said Vijaykumar. The trigger for the decision might be the 16.7% contraction in exports in October. Unless exports pick up, India may not achieve the growth rate in gross domestic product for FY23 and FY24. This could be the macroeconomic significance of this decision, said Vijaykumar.
“We welcome the government’s decision, as this is a progressive step towards reviving the entire steel industry," Brij Bhushan, vice chairman and managing director, Shyam Metalics and Energy, said. The imposition of export duty by the Centre was to curb inflation and boost domestic availability.
Source: The Mint newspaper