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Run-up to the Budget: Steel Industry

State of the industry (2000-01)

• Demand for steel is expected to increase marginally, due to low growth in construction and project related activities (such as the general engineering sector), marginal growth in agricultural output, and a decline in automobile production during the July-December 2000 period.
• The demand-supply situation is expected to be balanced, as producers maintained operating rates. No new investments were made for increasing capacity.
• In the international market, prices of flat products have declined significantly, due to an increase in inventories in the US and the EU, and a slow-down in the US economy. (Prices reached their peak levels in May-June 2000.) Domestic prices declined due to a decline in international prices. (Exports to the US were low due to the expected imposition of anti-dumping duties on Indian HR coil exports.)
• Prices of long products were also under pressure due to a marginal increase in domestic demand. Prices of steel intermediaries, such as sponge iron and pig iron, declined due to low demand for finished steel.
• During the April to September 2000 period, margins of domestic steel manufacturers remained low. Margins have been declining due to low realisations in the domestic and export markets, high interest rates, and depreciation.

• A reduction in the excise duty: The Cold Rolled Steel Manufacturers Association of India (CORSMA) has asked for a reduction in the excise duty on galvanised sheets, from 16 per cent to 8 per cent, in order to increase the demand for CR coils.

  The All India Steel Rerollers Association has asked for the restoration of capacity based assessment (excise duty payable would be proportionate to the plant capacity), or alternatively a reduction in the ad-Valorem excise duty, from 16 per cent to 8 per cent.

• A reduction in the import duty: CORSMA has asked for a reduction in the import duty on HR coils, given the higher effective rate of protection provided to the industry by way of floor prices on HR coils. CORSMA has also asked for a reduction in import duty on zinc, from 35 per cent to 15 per cent, in order to reduce the cost of galvanising, and thereby increase the demand for CR coils.

  The Pig Iron Manufacturers Association has asked for a reduction in the import duty on metallurgical coke, from 15 per cent to 5 per cent.

  The Sponge Iron Manufacturers Association has asked for a reduction in the import duty on non-coking coal, from 15 per cent to 5 per cent.

  The All India Steel Rerollers Association has asked for a reduction in the import duty on rerollable scrap, from 25 per cent to 5 per cent.

• Exemption of excise duty: The industry has asked for the exemption of excise duty on domestic steel used for power, petroleum and fertiliser projects, in order to compete with zero duty steel imports used for such projects.

(per cent)	Customs duty		Excise duty
	1999-2000	2000-01	1999-2000	2000-01
Coking coal	5.5	9.7	0.0	0.0
Non-coking coal	16.5	21.2	0.0	0.0
Refractories	38.5	44.0	16.0	16.0
Inputs for refractories1	40.0	40.4	-	-
HBI/Sponge iron	27.5	32.6	16.0	16.0
Steel melting scrap	5.5	9.7	16.0	16.0
Iron ore, pellets	5.5	9.7	8.0	16.0
Ferro molybdenum	27.5	32.6	16.0	16.0
Ferro nickel	5.5	9.7	16.0	16.0
Other ferro alloys	27.5	32.6	16.0	16.0
Pig iron	16.5	21.2	16.0	16.0
Billets/Slabs	27.5	32.6	16.0	16.0
Bars and rods	38.5	44.0	16.0	16.0
Structurals	38.5	44.0	16.0	16.0
Plates	38.5	44.0	16.0	16.0
HR coils	27.5	32.6	16.0	16.0
CR coils	38.5	44.0	16.0	16.0
GP/GC	38.5	44.0	16.0	16.0
Electrical steel sheets	38.5	44.0	16.0	16.0
TMBP	27.5	32.6	16.0	16.0
Tin plates	38.5	44.0	16.0	16.0
Alloy steels	38.5	44.0	16.0	16.0

TMBP: Tin mill black plate *Inputs for refractories include only dead burnt magnesite and fused magnesite.

Notes:

1. 1) For 2000-01, customs duty includes the SACD of 4 per cent, effective since 1999-2000.
2. In 1999-2000, the SACD was applicable only for non-traders, and hence, has not been included in the customs duty.
3. 2) In the Union Budget 1999-2000, MODVAT credit was increased to 100 per cent of the excise duty paid on inputs.
4. 3) Surcharge of 10 per cent on the basic customs duty, levied in the Union Budget 1999-2000, has been included in the customs duty for 1999-2000 and 2000-01.

Steel and intermediates: Domestic and international prices, and landed cost

	Domestic	Prices	International	Prices	Landed Cost
		Rs/tonne		$/tonne	Rs/tonne
	Price type	Jan 2001	Price type	Jan 2001	Jan 2001
HBI/Sponge iron	Market	6,000	-	-	-
Scrap	Market	6,100	fob US	81	8,507
Pig iron	Market	8,600	fob CIS	110	10,002
Billets	Market	n.a.	fob Europe	180	16,050
Merchant bars	Market	14,350	fob London	255	23,372
Wire rods	Market	15,600	fob Brussels	310	19,807
Structurals	Market1	15,600	fob Europe1	298	26,779
HR coils	Market 10G HR Sheet	17,500	fob CIS	170	15,321
CR coils	Market 16G CR Sheet	21,500	fob CIS	267	24,330
GP/GC sheets	Market 20G GP Sheet	22,800	fob Brussels	428	38,674

n.a.: Not available

1. 1 Domestic prices are for Channels 300"90 mm and International prices are for sections 300-600 mm

Notes:
For 2000-01, the landed cost and customs duty include the SACD of 4 per cent, effective since 1999-2000. In 1999-2000, the SACD was applicable only for non-traders, and hence, has not been included in the customs duty.

Compiled by CRIS INFAC

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Rediff-CRISIL Budget Impact Analysis

Budget 2001

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