Nepal raises import duties on steel in annual Budget, Indian exports to be hit

Nepal's government has imposed import duties on several steel products in its annual Budget announcement on 29 May'22 in a bid to control foreign exchange outgo amid rising inflationary pressure. The government has proposed to control inflation within 7% in its NPR 1.79 trillion budget and has emphasized on 'Make in Nepal' and the need to boost domestic manufacturing.

Higher duties

While the duty on mild steel wire rods has increased from 5% to 10%, galvanized iron (GI) wires, angles, channels, beams, patra and corrugated sheets will attract a duty of 30%. The import duty on cold rolled sheet has been raised from 5% to 15%.

However, duties on hot rolled sheets and semi-finished steel (billets) have been kept unchanged as Nepal relies heavily on steel imports to fulfill demand. Out of 2.06 million tonnes (mnt) of steel imported by Nepal in CY'21, the share of billets was around 1 mnt followed by flat steel at 650,000 t and longs at 310,000 t.

Nepal's annual installed melting capacity is about 500,000-600,000 t, an increase from 400,000 t earlier. Currently, mills in Nepal melt roughly about 80% of sponge iron and the remaining scrap and other metallics to produce a tonne of hot metal, as per SteelMint data.

The import duty on sponge iron has been raised to 1% from zero previously. In 2021, the Nepal government slashed customs tax and excise duty on imported sponge iron to zero for FY'22 from 5% earlier, citing the need to facilitate domestic manufacturing growth.

As a result, Nepal's sponge iron imports from India from than doubled y-o-y to 370,000 t in FY'22.

Meanwhile, domestic duties have also increased in the budget, which are mentioned below in the table.

Impact

The government is offering rebates for exporters in an effort to shore up foreign exchange reserves and has increased the excise duty on domestic steel producers.

Going forward Nepal's effort to curb steel imports will impact mainly Indian suppliers. India alone accounted for around 2 mnt of total imports last year - around 96% of Nepal's total imports. SteelMint understands that the expected drop in imports from Nepal will directly affect the Indian induction furnace steel producers.