Steel prices set to come down as govt hikes export duty

When it comes to India's steel exports, it's not a question of whether it will drop or not, it's a question of by how much it will fall. While some research and analyst group thinks the export of finished steel products from India will come down by nearly 25 per cent, some other groups think it may actually fall by 35-40 per cent. And this projected drop can be attributed to imposition of a 15 per cent export duty by the Centre, last month.

The Centre also hiked export duty on iron ore fines and lumps from 30 per cent to 50 per cent at that time. The decline is likely to be more pronounced in highly competitive markets like Southeast Asia and the Middle East compared to Europe, where export offers typically are higher. This development is to be seen in light of the fact that steel exports had earlier reached a record high of nearly 18.3 million tonne last fiscal and subsequently, continued to see momentum because of the disruption caused by the ongoing Russia-Ukraine conflict. So the drop will happen after two back-to-back years of earnings surge witnessed by steelmakers.

Significantly, in FY22, Indian steel companies recorded a 25 per cent year-on-year growth in finished steel exports as they took the benefit of elevated seaborne prices. Europe, Vietnam and the Middle East were the three largest destinations for Indian steel exports, together accounting for around 50 per cent of India's overall steel exports.

One has to keep in mind that Russia is a key exporter of steel, coking coal and pig iron. Besides, the European Union's (EU) move to raise India's export quota – amid a widening differential between steel prices in the two geographies ��� benefited domestic steel makers, and limited the impact of a 25 per cent tariff on steel imports imposed by the EU.

Now, the next bigger question, as a consequence is what would be its impact on the domestic steel market? If one goes by Crisil Research's assessment, the duty-driven price correction will improve availability of steel in the domestic market as finished steel exports dwindle. This will directly impact India's export volume in the current fiscal.

Steelmakers will attempt to skirt the duties by bumping up exports of alloyed steel and billets, but that is unlikely to compensate for the loss of finished steel exports. Icra, on its parts, is of the view that with domestic hot rolled coil prices correcting by around nine per cent since the imposition of the export duty, and with coking coal consumption costs poised to spike by around 30-35 per cent quarter-on-quarter, notwithstanding the correction in domestic iron ore prices, the industry's operating profits are expected to sequentially decline by $80-90 per MT in Q1 FY2023.

Mind you that on the price front, as of mid-June, prices are already at Rs 62,000-64,000 per tonne and various estimates suggest that it may trend below Rs 60,000 per tonne by the end of the fiscal.