Steel price reprieve for automakers
The government's move to levy a 15 percent export duty on steel and lower them on ferro nickel, coking coal and raw materials has led to sharp drop in steel prices.
Steel prices are expected to fall by an estimated Rs 10,000 per tonne in the forthcoming weeks following the reduction in import duty on some key raw materials used in its manufacturing.
A moderation in the steel prices and an expected reduction in the casting and pig iron prices is, therefore, likely to bump up margins of auto companies by 60 to 100 basis points, said analysts.
Pushan Sharma, Director, Crisil Research said import duty cuts will enable auto companies to get some relief from overall input price increase. He added that lower steel prices will lead to some comfort on the margin front for the industry, which is reeling under extreme cost pressures.
The government earlier this week levied a duty of 15 percent export duty on as many as 11 iron and steel intermediaries and lowered import duties on ferro nickel, coking coal and pulverised coal injection raw materials used by the steel industry. Post the announcement, prices of TMT bars crashed by Rs 5000 per tonne on Monday to Rs 52,000 a tonne from Rs 57,000 per tonne on Sunday. Ingots and billets are now cheaper by Rs 5000 per tonne with prices reduced by Rs 5,000 per to Rs 50,000/tonne and Rs 51,000/tonne respectively. Steel rolling mills in Gujarat are expected to lower the prices in the coming days.
Since its April peak, domestic flat steel prices have seen a correction by close to Rs 7,000-,9,000 per tonne as a result of lower global prices coupled with weak demand. India exported close to 13.5 million tonnes of finished steel and another 4.9 million tonnes of semi-finished steel in fiscal 2022.
The government’s decision to raise duties will curb exports significantly, leading to further price corrections in the domestic market. "Prices are set to fall further by another Rs 6,000-8,000 ( 10 percent of current prices) from current levels over the next quarter, providing much relief to the downstream industries. Fall in input costs due to the imposition of exports duty on iron ore as well as removal of customs duty on coking coal will also enable price correction," said Hetal Gandhi, Director at Crisil research. Mahesh Desai, chairman of the Engineering Export Promotion Council Chairman said lower steel product prices will “help domestic companies compete better globally”.
On average, a passenger car uses 800 kg of steel. For a two-wheeler, the requirement of steel is around 110 kg and for a heavy commercial vehicle, around 3000 kg of steel . Cumulatively sheet metal currently accounts for between 5 and 22 percent of a vehicle’s total cost.
The Society of Indian Automobile Manufacturers or SIAM said that engineering goods that account for a fourth of India’s $ 109 billion total merchandise exports in FY22, are now better placed with such price cuts on steel. The apex body has stated that automakers can now have a sigh of relief as reduction in import duties for raw materials in steel and plastic products and increase in export duty on steel intermediates will cool off prices and provide a cushion of sorts for the domestic automakers.
“The recent interventions towards lowering of customs duty on select raw materials, and the reduction of import duty on iron ore are strong steps in the right direction,” said Deepak Shetty, CEO and managing director of JCB India.
According to a finance ministry notification issued last Saturday, an export duty of 45 percent will be imposed on iron ore pellets and a 15 duty on select pig iron, flat-rolled products of iron or non-alloyed steel, bars and rods, and flat-rolled products of stainless steel. The current export duty on iron ores and concentrates will be raised from 30 percent to 50 percent. The import duty on coke and semi-coke will be scrapped from the current 5 percent.
Similarly, the basic customs duty on PCI coal and coking coal is proposed to be scrapped (from 2.5 percent ) and that on naphtha reduced to 1 percent from 2.5 percent. The duty on ferro-nickel will be cut to zero from 2.5 percent and that on methyloxirane (propylene oxide), an input for manufacturing plastics, halved to 2.5 percent.
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