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Rediff.com  » Business » Alloy steel: Benefits from cut in customs duties

Alloy steel: Benefits from cut in customs duties

March 19, 2012 16:47 IST

Budget Provisions:

• Generic excise duty is being enhanced from 10 per cent to 12 per cent.

• Steam Coal classified under CTH2701 1920 is being fully exempted from basic customs duty along with 1 per cent CVD.This dispensation would valid up to 31st March 2014.

• Full Basic Customs duty exemption is being extended to Coal Mining Projects.

• Basic Customs Duty is being reduced to 2.5 per cent for the equipments required for setting up or substantial expansion of iron ore pellet plants & iron ore beneficiation plants.

• Export duty on chromium ores and concentrates, all sorts is being enhanced from Rs 3000 per tonne to 30 per cent ad valorem.

• Basic Customs duty on nickel ore & concentrate classified under tariff item 26040000 is being fully exempted.

• Basic customs duty on nickel oxide & hydroxide classified under 28254000 is being reduced from 7.5 per cent to Nil.

• Basic customs duty on Ammonium Metavandate, classified under heading 2841, is being reduced from 7.5 per cent to 2.5 per cent.

• Basic customs duty on Titanium dioxide classified under CTH 28230010 is being reduced from 10 per cent to 7.5 per cent.

• Basic customs duty on Boric Acid classified under CTH 28100020 is being enhanced from 5 per cent to 7.5 per cent.

• Basic customs duty on Sintered natural uranium dioxide /Sintered uranium dioxide pellets classified under CTH 2844 20 00 for use in the production of nuclear power is being reduced from 7.5 per cent to Nil.

• Basic customs duty on Organic / Inorganic Coating material for manufacture of electrical steel is being reduced from 10 per cent to 5 per cent on actual user basis.

• During the Twelfth Plan period, infrastructure investment will go up to Rs 50 lakh crore. For the year 2011-12, tax –free binds for Rs 30,000 crore were announced for financing infrastructure projects. Budget has proposed to raise double to Rs 60,000 crore in 2012-13.

• Allowing ECB for low cost affordable housing projects, setting up of credit Guarantee Trust Fund for housing loans and enhancing the limit of indirect finance under priority sector from Rs 5 lakh to Rs 10 lakh along with extending interest subvention scheme of 1 per cent on housing loan up to Rs 15 lakh altogether drive demand for steel as steel finished products are used in construction of a house.

• No change in the corporate tax.

Industry Expectation, which was not met:

• Increase the basic custom duty for alloy steel from the existing 5 per cent to at least 7.50 per cent (if not 10 per cent).

Budget Impact

Alloy steel is the steel, which is produced with intended amount of ore or more alloying elements in specified proportion to impact specific physical, mechanical, metallurgical and electrical properties. The common alloying elements are Manganese, silicon, Nickel, lead, copper, Chromium, Tungsten, Molybdenum, Niobium, Vanadium, Titanium, Boron and Uranium etc.

So, with the total exemption of custom duty of nickel ore & concentrates and reduction of custom duty of nickel oxide and hydroxide, Ammonium Metavandate, Titanium dioxide and Sintered natural uranium dioxide would reduce the landed costs of imports of inputs to the alloy steel products. In contrast to this the input costs of Boric acid would increase to the alloy steel with the hike in custom duty of Boric acid from 5 per cent to 7.5 per cent.

Besides, the increase in export duty on chromium and concentrates would increase the availability of chromium ore at slightly lesser prices, and help in greater availability and marginally lower cost to the alloy steel sector.

On the wake of hike in the excise duty of alloy steel and its inputs ferro alloy, melting scrap for steel & stain less steel and nickel from existing 10 per cent to 12 per cent, the prices of alloy steel would rise further in the coming period. To the extent the alloy and stainless steel is sold for further processing by the auto, capital goods, and consumer durables sectors, it is more of a pass through with negligible impact.

But for supplies to non excise duty leviable segments like construction etc, the players have to either hike prices or absorb additional costs, and to this extent the hike in excise and service tax is adverse for the alloy and stainless steel producers.

The removal of customs duty on thermal coal and reduction in CVD from 5 per cent to 1 per cent will reduce the landed cots of imported coal. This would lead to some cost savings for the Indian alloy steels sector, which is increasing the share of imports in its total coal requirements, due to sluggish domestic production trends, and priority given to power sector.

Apart from this, reduction of custom duty to 2.5 per cent for the equipments required for setting up or substantial expansion of iron ore pellet plants & iron ore beneficiation plants is likely to encourage more capacity additions for the pellet plants.

On negative side, the government has not proposed any increase in the custom duty of alloy steel.

The alloy steel constitutes only approximately 10 per cent of the overall annual steel production in terms of quantity, its share is approximately 20 per cent in terms of value since the products are substantially value added for specific end users and the capacity utilization is now only around 58-60 per cent as against 80-85 per cent for general steel.

Moreover, India currently imports 31 per cent of alloy steel out of its consumption.  We expect the duty draw back to increase in June 2012, factoring in higher excise and service taxes.  This should help players in respect of alloy and stainless steel exports.

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