Ministry wants a 15 percent export duty on steel to stay till December

The 15 percent export duty imposed in May on a range of items covering around 95 percent of the finished steel export basket is likely to remain till December as the steel ministry feels that any rollback of the duty at this stage may suppress domestic prices.

"Duty rollback may also give unintended signals to the market to prefer exports over domestic demand," the ministry said in a note.

The ministry is confident domestic demand will go up after the monsoon, mainly because of the government's thrust to build infrastructure across the country, which will put upward pressure on prices.

At the same time, the cost of production for domestic steel makers will rise as prices of primary inputs such as coal and iron ore are expected to increase.

"Given this, reduction in duty may be considered after stabilization of the present volatile market condition, cooling of inflationary pressures and the steel price trends in the next quarter," the ministry said.

In FY 22, India's steel exports at 18.37 million tonnes, comprising both finished and semi-finished steel, were the highest in absolute terms. The proportion of production was 11.9 percent in the case of finished steel and 15.3 percent in the case of crude steel.

"Higher exports may have, in part, helped sustain high prices of steel during FY22," the ministry believes. Export duty was imposed on eleven items, including hot-rolled coil (HRC) and cold-rolled coil (CRC), on May 21 to contain the domestic prices of steel.

Within 20 days of the duty imposition, prices declined by 9-14 percent by June 10, but the pace of decline moderated since then. The fall was 5-17 percent by August 19 compared with the May 21 price. But the decline in domestic prices was lower than the price reduction in the range of 20-39 percent in the EU and US over the same period.

During the June-July period of the current fiscal year, India's finished steel exports were 1.02 million tonnes, which is 65 percent lower than the 2.88 million tonnes exported in the previous fiscal period.

The steel ministry's study finds that only stainless-steel products saw some rise in exports during the period.

In a recent report, rating agency ICRA said the imposition of export duty on finished steel products and the slowdown in demand in international markets have made exports unattractive. Going by the trend for the first four months of the current fiscal, it said exports might decline by 40-45 percent in the current fiscal over FY22.