India: Govt imposes hefty duty on steel, iron ore, pellets exports

• Iron ore of all grades to attract 50% duty
  
  
• 45% duty to be levied on pellets exports
  
  
• 15% duty imposed on steel exports
  
  

In a highly significant development late on 21 May'22, the government imposed hefty export duties on steel and steelmaking raw materials and intermediaries in a bid to preserve higher domestic supplies and control rising prices.

The government has also cut the import duty on coking coal and metallurgical coke as well as PCI and anthracite coal to offer some relief to domestic end-users grappling with high inflation.

New duty structure

Clearly, the government wants to control exports of iron ore and pellets to ensure higher supplies for the domestic industry. Export duty on iron ore of all grades has been fixed surprisingly high at 50% from 30% previously only on ore of grade above Fe58%.

No less steep is the duty to be levied on pellets which has been fixed at 45%. Duty-free pellets exports has been a controversial subject since 2015-16 when exports started to rise sharply due to global supply disruption. In fact, the Supreme Court was still hearing cases related to pellet exports and indirect duty aversion.

India's iron ore exports in FY'22 stood at 15.28 million tonnes (mnt) while exports of pellets had been recorded at over 11 mnt, as per SteelMint data.

Similarly, pig iron exports will now attract a duty of 15% from nil previously. India's pig iron exports had risen to 1.3 mnt in CY'21.

Moreover, an export duty of 15% will be levied on hot-rolled and cold-rolled alloy and non-alloy flat steel products of 600mm or more in width from zero duty previously.

Similarly, 15% duty will be levied on exports of hot-rolled bars and rods, other bars and rods of iron or non-alloy steel, flat-rolled products of stainless steel, bars and rods of stainless steel as well as angles, shapes and sections of stainless-steel.

India's steel exports in FY'22 stood at over 20 mnt.

However, offering some relief to stainless steel producers, the government has removed the 2.5% import duty on ferro nickel.

Notably, amid the surge in global and domestic coal prices, the government has removed the 5% import duty on metallurgical coke and the 2.5% duty on coking coal.

Rationale & impact

The announcement of substantial export duty on key raw materials and steel points to the government's intent to control inflation and prices, evident from its decision to lessen the excise duty on petrol and diesel and curb wheat exports.

Following the Russia-Ukraine war, global and domestic steel prices had risen sharply amid rising energy prices leading to global inflation. Export duty on steel is likely to result in higher domestic supplies, thereby exerting downward pressure on prices.

Firm steel prices and surging post-pandemic global steel demand led to significant exports by Indian suppliers to traditional and emerging markets. Likewise, the government has taken into reckoning the fact that higher domestic steel prices have impacted demand and the surge in steelmaking raw material prices is affecting the operations and profitability of the domestic industry.

In line with its earlier move of lifting the import duty on ferrous scrap announced in the Budget, the government is seeking to ease the pressure on domestic producers by removing import duties on raw materials.

Going forward, the immediate impact of the government's tough stand on reducing steel and steelmaking raw material exports could be a decline in iron ore fines and pellets shipments. Likewise, exports of flat steel and stainless steel by the country's steel majors are likely to be affected.

Overall, the government's move is likely to create higher steel and steelmaking raw material supplies for the domestic industry and result drop in steel prices.

SteelMint has accessed the above information from credible sources and the new export duty structure will come into effect from 22 May'22, with the notification to be published in the official gazette.