THE steel ministry has proposed a series of fresh initiatives like cutting duties in inputs like refractories, zinc and met coke; lowering excise duty on the product from present 14% to 8% curbing iron ore exports through higher export duty and introducing duty on steel exports and reducing rail transportation charges (for ore moved to ports) for iron ore. This comes even as the government is actively considering reducting import duties on steel. Steel imports today carry an import duty of 5%.
While the commerce ministry is holding meeting with iron ore exporters on Tuesday, steel ministry has forwarded a fresh proposal to the finance ministry with a set of fiscal measures aimed at curbing steel prices that have increased between 25-30% in last three months. Decisions are expected to come quickly as there are expectation that steel prices may move up again owing to global developments.
“Rising steel prices is high on government agenda of measures to contain inflation. While some movement has been made by cutting down export incentives (DEPB benefit) for steel, other fiscal measures would be considered to bring down prices in the short-term,” an official source said.
The new initiatives for the steel sector is being considered in wake of over 60% increase in steel prices during 2007-08. In fact, prices have shot up between 25-30% in last three months alone increasing benchmark hot rolled coil (HRC prices to round Rs 34,000 a tonne mark.
While government is confident fiscal measures would soften prices, analysts feel that it would have only marginal impact as government is ignoring supply side constraints. “On a production of about 52-53 million tonne of steel, there is a demandsupply gap of 2 mt. This gap has been widening rapidly now with steel consumption growing at over 13% for last few years while production growing by just 5%. A import duty cut would also not help as international steel prices are about $ 200 higher than domestic prices,” said Moosa Raza president of Indian Steel Alliance (ISA).
Besides, steel producers also feel that a export duty on steel would also not address the issue of supply constraint as rapid increase in consumption would leave the fiscal measure ineffective. They, however, support cut in excise duty to 8% that could be passed on to the consumers by way of price reduction of between Rs 1,200 to Rs 1,500 per tonne.
The industry expects that government should put all its efforts to check rising prices of inputs. The supply constrained could be addressed in coming years as ambitious expansion plans of companies starts getting realised. The production is expected to more than double by 2012 to over 120 mt.