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Rediff.com  » Business » Budget 2013-14: Enhance custom duty on steel long products

Budget 2013-14: Enhance custom duty on steel long products

February 25, 2013 19:12 IST

Steel is closely linked with production activities in various sectors of the economy. Being the basic material for development of economic and social infrastructure, steel is used for producing capital goods as well as final consumption goods. As a result, there is a direct relationship between economic growth as measured by Gross Domestic Product and demand for steel.

The iron and steel industry in India consists of integrated steel plants based on Blast Furnace, Basic Oxygen Furnace route, main producers based on Cores, Finex or PCI Technology, mini steel plants and standalone finished steel producers i.e. re-rolling units, HR coil units, cold rolling units, GP/GC units, colour coated units and tin plates. Besides there are units of pig iron, sponge iron, steel wire drawing, alloy and special steels and stain less steel.

Pig iron route of steel making utilizes metallurgical coke (met coke) while Sponge iron route of steel making utilizes non-coking coal with the basic raw material iron ore. To produce one tonne of pig iron, 1.8 tonnes of iron ore, 0.9 tonnes of coking coal which is converted into 0.6 tonnes of coke and 0.45 tonnes of limestone is required. While to produce 1 tonne of sponge iron, 1.6-1.75 tonnes of iron ore, 1.2-1.5 tonnes of coal and 0.035 tonnes of dolomite is required. 

During Feb 2013 compared to Feb 2012, HR coil prices stood at Rs. 45,510 per tonne lower against Rs. 44,886.67 per tonne, CR coil prices stood at Rs.51,210 per tonne marginally higher against Rs. 51,680 per tonne. Similarly, Angles prices recorded at Rs.46,730 per tonne against Rs.44,520 per tonne amidst Channels stood at Rs. 45,800 per tonne against Rs.44,823 per tonne. Currently, the steel prices are supported by scarcity of iron ore and steady demand in the country though constrained by pressure in reducing met coke prices across the world.

Item

Existing ( 2012-13)

Proposed ( 2013-14)

 
 

 

Excise Duty%

Customs Duty%

Excise Duty%

Customs Duty%

 

Pig iron

12.0%

5.0%

12.0%

5.0%

 

Semis

12.0%

5.0%

12.0%

5.0%

 

Non-alloy steel bars and wire rods

12.0%

5.0%

12.0%

10.0%

 

Alloy steel bars and wire rods

12.0%

5.0%

12.0%

10.0%

 

Strcuturals ( Alloy steel )

12.0%

5.0%

12.0%

10.0%

 

HR Sheets/plates ( Non Alloy )

12.0%

7.5%

12.0%

7.5%

 

HR Coils ( Non Alloy )

12.0%

7.5%

12.0%

7.5%

 

CR Coils/ sheets ( Non Alloy)

12.0%

7.5%

12.0%

7.5%

 

GP/GC Sheets(Non Alloy)

12.0%

7.5%

12.0%

7.5%

 

HRGO/HRNGO( Non Alloy)

12.0%

7.5%

12.0%

7.5%

 

HR/CR alloy steel ( flat rolled ) other than items of Headings No.( 72253090 , 72254019 , 722550 and 72259900)

12.0%

5.0%

12.0%

5.0%

 

Flat Rolled Alloy products of heading ( 7225 3090 , 72254019 , 722550 and 72259900 )

12.0%

7.5%

12.0%

7.5%

 

Tinplates and TFS seconds

12.0%

10.0%

12.0%

10.0%

 

Defective CR coils

12.0%

10.0%

12.0%

10.0%

 

Stainless steel HR coils for coin blanks

12.0%

5.0%

12.0%

5.0%

 

Melting scrap( iron , steel & stainless steel )

12.0%

0.0%

12.0%

0.0%

 

Re-rollable scrap

12.0%

5.0%

12.0%

5.0%

 

Iron ore

12.0%

2.50%

12.0%

2.50%

 

Coking coal

1 without CENVAT Credit

0%

1 without CENVAT Credit

0%

 

Steam coal

5 or 1 without CENVAT Credit

0%

5 or 1 without CENVAT Credit

0%

 

Met coke

5 or 1 without CENVAT Credit

0%

5 or 1 without CENVAT Credit

0%

 

Ferro Alloys other than Ferro Nickel

12.0%

5.0%

12.0%

7.5%

 

Nickel viz Unwrought Nickel, Nickel Oxide and Ferro Nickel

12.0%

2.5%

12.0%

0.0%

 
  •  Request for Enhancement of Import Duty on Alloy Steel Long Products from the existing 5% to 10%. 

Alloy steel producers association has recommended to increase the import duty on alloy steel long products from existing 5% to 10%. Alloy steel sector has an installed capacity of approx. 11 million tones out of about 80 million tonnes for the entire steel industry in the country. At approx. 5 million tonne production against 11 million tonne capacity, the utilization in the sector is below 50% as against 85% capacity utilization for the entire steel industry. 

The situation has further worsened due to a surge in imports of alloy steel in recent times. Just to cite some figures: During the period April-December 2012 , the import of alloy steel amounted to 1387,000 tonnes against 1131,000 tonnes in the same period 2011.This means an increase of 23% , and the upward trend is continuing.

The strengthening Rupee will give further impetus to imports. Bulk of these alloy-steel imports are from Japan and Korea and some from China. With Korea and Japan our country has entered into “Comprehensive Economic Partnership Agreements (CEPA)” which allow these countries to export steel products at just about 3% basic import duty. Obviously, these CEPAs are hurting the Indian steel industry and need a rethink on part of the government. 

The customs duty on import of alloy in India till some years back was 50% higher than on merchant or mild steel prodcuts. In a sense, alloy steel was more at par with automotive components where import duties are at 10%. However , in a major departure from earlier norms , all categories of steel were subjected to 5% basic import duty , except certain flat products both in carbon and alloy steel where durties have been raised to 7.5% since the Union Budget of Feb 2012 and thereafter to obviate the detrimental impact of imports. 

  • Exempt 4% additional duty of customs on melting scrap of iron and steel imported by manufactures of steel. 

The Induction Furnaces Association recommends exempting the 4% additional custom duty on melting scrap of iron and steel. Induction furnaces owners who uses imported melting scrap of steel pay CVD+ ACD=16% approximately as Central Excise Duty is 12% and Additional Custom Duties ( SAD- special additional duty ) is 4%. Thus, the users are left with unused CENVAT Credit as they have to pay cash duty under PLA to satisfy the local Excise Authorities revenue concerns.

Moreover there is additional Cenvat credit on account of Service Tax on Inland Haulage charges and other import related services thus adding to unutilised amount in the Cenvat account. This is all the more important because trader gets refund of this ACD where as the manufacturers funds are blocked in unused CENVAT credit. In the Country there are around 1100 operating Induction Melting Furnace units who are contributing in producing over 33% of total domestic crude steel production.

Hence, if the 4% of additional custom duty is totally exempted on melting scrap of iron and steel imported by steel manufacturers, this will reduce the costs and improve the performance of the steel players who uses induction furnace in their production process. 

  • Deemed Duty Credit on Steel Scrap for availing CENVAT Credit 

The Induction Furnace industry recommends for Deemed Duty Credit on Steel Scrap for availing CENVAT Credit. The steel melting scrap used by the induction furnace is sourced through either imports or from traders/Kabaries that collect scrap from different sources or from the non-excisable industries. 

The iron steel scrap generated from non-excisable units such as SSI engineering and other SSI units making steel based products, and units located in tax free zone use steel, which is duty paid. But there is no proof of payment of Central Excise on such scrap and hence no credit is available to furnace units who want to use this scrap and therefore the Cenvat chain breaks.

Adding to this, the indigenous steel melting scrap procured by Kabaries from small manufacturing units is available without excise documents. As such, no excise document can be submitted to the excise authority. Therefore, the induction furnace units are not able to get the Cenvat credit on this type of scrap. In view of the high potential of Secondary steel sector for the overall growth of the domestic steel industry and economic development of the country, the Induction Melting Furnace units requests for allowing Deemed Duty Credit on steel scrap. 

  • Increase Custom duty on Ferro alloys from 5% to 7.5%

Ferro Alloy sector recommends increasing the custom duty on Ferro alloys to 10%.To increase the Customs Duty on Ferro Alloys to 7.5% except Ferro Nickel. This is because the import of Ferro Alloys is increasing every year, when the domestic Industry is working at around 60 % capacity leaving balance 40 % lying idle.

The Industry fears that there will be about the cheap imports from other countries with the import Duty on Ferro Alloys at 5%.The Industry needs a level playing field by supplying power at international price. The power tariff is 3 to 5 times higher as compared to the power tariff available in other Ferro Alloy producing countries. These costs disadvantage encourages other countries to export Ferro Alloys into India at very low prices when the Duty is also at a lower level in the country.

Therefore, industry recommends increasing the basic Customs Duty from 5 % to 7.5 %. With this, Government’s revenue will also increase by levying higher import Customs Duty. 

In contrast to the above, the Induction Furnace industry recommends to abolish the custom duty of Ferro Alloys from 5%.Presently custom duty on ferro alloys such as ferro chrome, ferro silicon, ferro manganese, ferro moly etc is 5% which should be made as NIL specially for the ferro alloys which are  not manufactured in India like Low carbon Ferro Chrome, Low Silicon Ferro Chrome, Low sulphur Phosphorous Ferro Alloys etc. 

  • To waive Customs Duty on raw materials i.e., ores and for production of Ferro Alloys. 

Ferro Alloy sector recommends waiving the custom duty on raw materials required for production of Ferro alloys. The reduction in Customs Duty of Ferro Alloys, without reduction in the Duty of Ores , was certainly an oversight , since the difference between the Custom Duty of Ferro Alloys and Ores is now at 2.5% which almost nullifies , due to Central Sales Tax of 1% to 2% for domestic supplies.

The import of Raw Material - ManganeseOre, ChromeOre, MolybdenumOre and Vanadium Oxides are negligible. These raw materials are very essential for producing Manganese Alloys, Chrome Alloys, Ferro Molybdenum and Ferro Vanadium respectively, to cater to the Steel and Stainless Steel Industry in the country.

As the Steel production increases, the requirement of Manganese Alloys, Chrome Alloys, Ferro Molybdenum and Ferro Vanadium will increase and so also the Raw Materials to produce the Alloys.  Therefore, IFAPA recommends, Government to reduce the Custom Duty of Ores, from existing 2.5% to 0%.  

  • Abolition of customs duty of Nickel, from 2.5% to NIL for production of steel.
  • Alloy steel sector recommends to abolish the custom duty on Nickel .The nickel required for producing Alloy / Stainless steels is not available indigenously. In the last Union Budget (2012-13) the government abolished import duty on stainless steel scrap in which Nickel is used as raw material. The most common stainless steels contain 8-10% nickel, 18% chromium and balance iron. The present custom duty on all three categories of nickels viz. Unwrought Nickel, Nickel Oxide and Ferro Nickel is 2.5%.
  • To waive Import Customs Duty on Anthracite Coal. 

Ferro alloy sector recommends waiving the import duty on anthracite coal. The basic Customs Import Duty on Anthracite Coal is 5 % with CVD of 6 %.Since Ferro Alloy Industry plays a vital role in the manufacture of Steel, it is necessary for Government to make available these Reluctants at international competitive price. Government has considered industry’s request in the past and reduced the Customs Duty on Metallurgical Coke to 0 %.

Analyst Expectations:

We expect Government to abolish the 4% additional duty of customs on melting scrap of iron and steel as this measure would increase the growth of the steel industry. Besides, increase in Ferro Alloys custom duty from existing 5% and removal of import duty of 2.5% on its inputs would show some improvement in ferro alloy production and capacity utilization. Therefore, these measures would reduce the costs for steel industry and thereby increase the margins.

Stocks to Watch:

     Tata Steel, SAIL, JSW Steel, Essar Steel, JSW ISPAT

Outlook 

The focus of the budget is expected to be an infrastructure development. Steel being the core sector is expected to be an indirect beneficiary of the focus of Infrastructure Development. A greater thrust on infrastructure could facilitate acceleration in demand for longs.

Global economy is expected to grow by 3.5% in 2013. The world crude steel production for 2012 was 1548 million tonnes, a growth of 1.2% coming mainly from Asia , North America and Russia  while contraction reported in Europe. Global Steel demand is expected to grow by 3.2% in 2013, with raw material prices to be less volatile.

The Indian economy is bottomed out and expected to turn around in FY2013-14 to stimulate steel demand growth while imports mainly from FTA countries, remain a concern. Pragmatic policies on iron ore mining, speeding up of infrastructure projects and expected interest rate cut by RBI will boost demand for steel.

Complete coverage: Union Budget 2013-14

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