Steelmakers hit by uncertainty over import duty hike

3 March 2015

Shares in steelmakers mostly fell on Monday amid uncertainty whether the government would raise import duties on the alloy and whether any increase would be enough to protect the industry.

Shares in Jindal Steel and Power fell as much as 6.7 percent, while Tata Steel and JSW Steel also underperformed the broader Nifty which rose 0.62 percent to close at a record high.

In Saturday's annual budget, Finance Minister Arun Jaitley said the tariff rate on steel imports would be increased to 15 percent from 10 percent, cheering Indian producers which have been battered by cheap Chinese metal.

However, Jaitley also said there would be "no change in the existing effective rates of basic customs duty on these goods".

A finance ministry official was not immediately available to clarify the discrepancy, but companies themselves, optimistic earlier, said they were now not pricing in any changes.

"Since there is no increase in import duty, it is our apprehension that the surge in steel imports will continue unabated unless adequate measures are taken," said H. Shivramkrishnan, chief commercial officer at Essar Steel.

As it stands, said a senior executive at a different major domestic steelmaker, India's budget suggests the government has simply paved the way to raise the import duty up to 15 percent from 10 percent earlier without going to parliament for approval, speeding up the process.

That is unlikely to be sufficient for Indian steel producers, which have sought a tax hike, among other measures, to stem the flow of cheap imports, as Russia and China ship out surplus output to global markets.

"China and Russia are still maintaining margins on the current rates so there is a window for them to reduce further to balance out this 15 percent. Hence, the duty should have been heavier," said independent consultant Prakash Duvvuri.

Almost all companies making the alloy in India have urged the government to take action against what they claim is "dumping" of cheaper steel, which has pressured prices and hit profitability over the past few quarters.

India was the fourth-biggest market for Chinese steel last year, with imports up 132 percent to 3.7 million tonnes, the biggest year-on-year increase among China's top destinations, based on data compiled by UK steel consultancy MEPS.

JSW, Jindal Steel and Tata Steel did not respond to emails seeking comment.


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