Metal and mining companies in India have had it all: with rising costs of raw materials, incessant delays in execution of projects, and controlled demand these companies have seen bad days. However, the new government of India brings in hope with the new budget that was presented some days back. Investment is one area that India is willing to look at and this shall benefit most sectors, including steel.
“The government’s investments and measures will trigger investment cycle. He (Finance Minister Arun Jaitley) has facilitated ease with which business can be done and has given clarity on the tax regime,” Koushik Chatterjee, Group CFO, Tata Steel told CNBC-TV18.
The demand for steel had been slow, a mere 0.6 % in 2013- 2014, which has fairly been the lowest in four years. In 2014, this demand has seen a value of over 3%.
“There are a lot of measures in the budget, ranging from setting of new ‘smart cities’ to redevelopment of airports that will spur demand for metal companies. Also, measures like new ports and tax rationalisation of different grades of coals will improve logistics and ease the business atmosphere,” said SV Sukumar, Head of Operations and Supply Chain, KPMG.
Steel companies will witness some rise in demand: basic customs duty on steel grade limestone and also dolomite has been reduced from 5 % to 2.5% , both of which are used in steel making.
Companies and steel giants like Tata Steel, JSW Steel, Jindal Stainless and the like will gain from an upsurge in the basic customs duty of imported flat-rolled products made of stainless steel from 5% to 7.5% - “The domestic stainless steel industry is presently suffering from severe under-utilisation of capacity,” the Finance Minister reasoned. “We welcome the step,” said NC Mathur, President, Stainless Steel Development Association.
The easy access to raw materials has been sufficiently problematic for steel companies – iron ore and coal.
Arun Jaitley, Minister of Finance, is of the following opinion:
“It is my government’s intention to encourage investment in mining sector and promote sustainable mining practices to adequately meet the requirements of industry without sacrificing environmental concerns. The current impasse in mining sector, including iron ore mining, will be resolved expeditiously. Changes, if necessary, in the MMDR Act, 1957, would be introduced to facilitate this,” he said.
“We have been making presentations to the minister. We will have to wait and see what changes are brought in,” said RK Sharma, Secretary General, Federation of Indian Mineral Industries, or FIMI.
However the increase in export duty on bauxite from 10 to 20% is worth critique.
“At present, most of the bauxite that is exported from India comes from Gujarat and Maharashtra. These are not required in India as these are refractory grade bauxite and are not used by the aluminium makers in the country,” he says. “Now, these bauxite reserves will lie around unused.”
The government has been criticized on its move to raise export duty on bauxite from 10% to 20% in the sense that it might increase costs of metal companies and their consumers subsequently. Now, mining companies pay royalty to the state governments and with respect to iron ore, the rates are expected to increase to a mark of 15% of output.