Nepal govt to increase import duty on sponge iron, scrap but reduces excise on billets in recent budget
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The Nepal Union Budget for 2024 has introduced several changes to the import duty structure that are expected to impact the steel industry. Key alterations include increases in import duties for sponge iron, scrap, and pig iron, alongside the waiving of excise duty on imported billet. Here's a detailed look at the highlights and their anticipated impact.
Key Changes in Import Duties
*Sponge Iron: The import duty on sponge iron has been raised from 1% to 2.5%.
*Scrap and Pig Iron: Both scrap and pig iron, which previously had zero import duty, will now incur a 1% import duty.
*Imported Billet: The excise duty on imported billet has been waived off, previously set at NPR 2,500 per tonne ($18.5). Importers used to receive an adjustment of INR 1,000 ($7.5) per tonne against this excise duty. However, the import duty on billet remains unchanged at 5%.
*Finished steel: Nepalese government has proposed to keep the excise duty on imported finished steel at NPR 1,000 ($7.5)
Landed price of imported billet before & after budget
Historical Context and Recent Trends
Nepal has historically relied on imports for its billet and finished steel needs, with annual import volumes exceeding 1 million tonnes (mnt). However, in recent years, the country has seen a significant increase in its domestic melting capacity, which now stands at 2.5 mnt per annum - up from less than 1 mnt just 3-4 years ago. This growth in capacity has been partly fueled by previous changes in the duty structure, which favored increased importation of sponge iron over billets.
As a result of these changes, sponge iron and scrap imports have increased by 55% last year , while billet imports were halved. This shift has been crucial in bolstering local production capabilities and reducing reliance on imported billets.
Industry Impact and Future Outlook
The recent budget changes are expected to have nuanced impacts on the steel industry:
Local Induction Mills: Industry participants anticipate that the increased duties on sponge iron and scrap will reduce margins for local induction mills. These mills, which rely on sponge iron and scrap as raw materials, will now face higher input costs.
Billet Imports: Despite the waiver of excise duty on imported billet, the 5% import duty remains in place. Consequently, it is unlikely that billet imports will see a significant increase in the near term. Local induction mills still maintain a cost advantage of hot charging in the melting and rolling processes, which helps them remain competitive against imported billets.
Conclusion
The Nepal Union Budget 2024 presents a mixed bag for the steel industry. While the increase in import duties on sponge iron and scrap might squeeze local mill margins, the unchanged billet import duty and the excise duty waiver aim to stabilize the market. As the industry adapts to these changes, the focus will likely remain on enhancing domestic production capacities and optimizing cost structures to sustain competitiveness in the evolving market landscape.