The Indian government’s decision to withdraw export duty on steel and some raw materials will improve sentiments but may not increase the near-term earnings of domestic steel producers because of subdued global demand, rating agency Crisil said in an industry note on Wednesday, November 23.
“However, in the longer term, it will improve the export competitiveness of the additional capacities that are being set up,” Crisil’s note said.
“At present, the world steel demand outlook is weak given recessionary headwinds. This is reflected in global prices which are 5-7 percent lower than Indian domestic prices. Between February and April, before the imposition of the 15 percent export tax, the export premium was 2-3 percent. Exports thus have become less remunerative except for strategically regaining market shares in the Middle East and Europe,” the rating agency said.
According to Crisil, pellet producers could be the biggest beneficiaries of the reversal of the 45 percent export levy because domestic prices are at a steep 35-40 percent discount to current global prices and this will incentivize exports and doing so will have a bearing on domestic steel producers as their input prices will increase.
It said that, in the long run, the withdrawal of the export tax will make the 32-34 million mt additional planned steel capacity globally more competitive and hence improve the utilization levels and profitability of domestic steel mills.