The combination of the Indian government reducing import duties on steelmaking raw materials, the imposition of export tax, and the usual weak market conditions during the monsoon season ahead could lead to a 10-15 percent correction in domestic steel prices, rating agency ICRA said in a report on Tuesday, May 24.
It said that the government’s decision to impose a 15 percent export duty on a range of finished steel products accounted for almost 95 percent of India’s overall finished steel exports and will render overseas sales significantly less attractive going forward, which in turn could exert pressure on domestic steel prices and industry capacity utilization levels.
“In 2021-22, Indian mills recorded a 25 percent year-on-year growth in finished steel exports as they took the benefit of elevated seaborne prices. Europe, Vietnam and the Middle East were the three largest destinations for Indian steel exports, together accounting for around 50 percent of India’s overall steel exports, including semis. We believe that many of these destinations will become less attractive now as mills evaluate the economics of a higher duty," ICRA report said.
“Additionally, with steel export offers for deliveries to Europe being higher by 10-11 percent over more competitive markets like Southeast Asia and the Middle East, the adverse impact of the new export duties on steel exports to Europe will be relatively less severe than that of Southeast Asia and the Middle Eastern markets," the report said.
The government has chosen to keep steel semis out of the ambit of export duties and therefore exports of semis, which declined by 26 percent year on year in 2021-22 to 4.9 million mt, are likely to witness a significant increase in the current fiscal year, ICRA noted.