The import duty on steel may be reduced, in line with the Government's stated position that they will be gradually brought down to Asian levels.
Current industry status
The steel industry has shown remarkable improvement in operational and financial performance since early 2002. The current momentum in the domestic steel prices is fuelled by sustained rise in international steel prices.
The international steel prices, on the other hand, draws comfort from robust rise in Chinese demand, which continues to import large quantities, despite being the largest producer in the world, on account of its robust rise in consumption.
In India, the finished carbon steel production increased by 6.6% to 239.12 lakh tonne in the nine months ended Dec'02.
During this period, import of finished carbon steel increased by 16.5% to 11.75 lakh tonne while exports (partly estimated) surged by 32% to 27.13 lakh tonne. Pig iron production jumped by 32.2% to 38.92 lakh tonne.
Production of HR coils / skelp etc by Main producers was 14.4% higher at 28.99 lakh tonne while their HR sheet production fell marginally by 1.1% to 2.49 lakh tonne.
CR coils / sheet production of main producers were 16.5% higher at 12.05 lakh tonne while their GP/GC sheet production were 27.9% higher at 4.82 lakh tonne.
The apparent consumption of finished steel rose by 4.8% to 205.68 lakh tonne in the nine months ended Dec'02. During this period, apparent consumption of Pig iron rose by 24% to 34.04 lakh tonne while that of HR coils /skelp etc rose by 19% to 53.99 lakh tonne.
Similarly, HR sheets recorded 14% rise in apparent consumption to 22.75 lakh tonne. However, apparent consumption of HR sheet fell by 14% at 4.16 lakh tonne while that of GP/GC sheets tumbled down by 28% to 9.11 lakh tonne during this period.
Sharp rise in realisations and marginsThe results of 50 major steel companies for the quarter ended Dec. '02 revealed 33% jump in sales to Rs 11521 crore, and virtual doubling of operating margins to 16.7% (from 8.8%) in the quarter ended Dec'02 over the corresponding previous year period. As a result, the net profit of these companies was robust and positive at Rs 327 crore as against a loss of Rs 778 crore in the corresponding previous quarter.
Further, the improvement in realisations continue, as reflected by Whole sale price index of Iron & Steel, which rose by 1.66% to 146.9 in Jan'03. Further, trends in the domestic and international prices indicate that the prices are likely to be firm in the current and next quarter also.
Prevailing tax rates and provisions| Parameters | Basic Customs Duty |
| HR Steel | 25% |
| CR Steel | 30% |
| Galvanised Steel | 30% |
| Bars/Rods/Structurals | 30% |
| Ship Breaking Scrap | 15% |
| Seconds / defectives | 40% |
| Pig Iron | 15% |
| Sponge Iron/Hot Briquetted Iron (HBI) | 25% |
| Raw Materials | |
| Graphite Electrodes (>24 inches) | 15% |
| Natural Graphite powder | 25% |
| Ferro alloys | 25% |
| Silicon metal (99% purity) | 25% |
| Coking coal ash content <12% ash content>=12% Non Coking coal with ash content < 12% | 5% 15% 25% |
| Metcoke for corex technology based steel plants | 5% |
| Melting scrap of Iron and steel | 5% |
Industry expectations from Budget 2003
Primary and HR producers
Stand alone CR steel producers
Pig Iron Manufacturers
Increase the duty differential between coke and coking coal to 10%.
The electric arc furnace based steel units have sought reduction in the import duty on graphite electrodes of all sizes to 10%, to facilitate reduction in the operating cost of EAF units.
The basic customs duty on ship breaking scrap to be reduced to 5% from 15% at present. This will facilitate reduction in the input costs of the industry.
Analyst expectations:
The import duty on steel may be reduced, in line with the Government's stated position that they will be gradually brought down to Asian levels.
Nevertheless, analyst expect that given the greater stake of the Banks and Financial institutions in terms of large outstandings and NPAs, and the adverse impact of reduction in the duty on the domestic prices, the reduction, if any is likely to be gradual.
Greater thrust on infrastructure projects, including national highway and road way projects is likely to spur demand for steel, which augurs well for the industry. The railway budget may marginally increase the freight rates, which will lead to marginal rise in costs, but given the current favourable conditions, the industry is likely to pass the same to customers.
Best Pre-budget Buys/Sells
Due to reduction in import duty in the budget Tisco and other steel scrips may face selling pressure in short-term. But the scrip prices should recover fast as currently prices and exports are strong.
The steel industry in general has seen sharp rise in prices, coupled with improved demand, thereby leading to remarkable improvement in financials. The feel good factor is set to continue atleast in the current and next quarter, going by the domestic and international scenario. With major financial restructuring in place, the interest cost of new generation steel units will come down to manageable levels, atleast in due course.