Union Budget 2011: Steel cos cheer iron ore export tax, infra spend
India's steel industry cheered the 20 percent export duty hike on iron ore in the FY12 federal budget that will help contain escalating raw material costs and gave a thumbs-up to higher infrastructure spends, which will boost steel demand in the country.
Steel makers have been reeling under margin pressure on rising input costs led by recent supply disruptions due to floods in Australia, a leading exporter to global markets.
"Higher export duty on iron ore has been a long pending demand of the steel industry and the budget has taken care of the issue," said C.S. Verma, chairman of state-run Steel Authority of India . "The increase in export duty on iron ore will increase its availability in the domestic market, thereby stabilising price and helping domestic steelmakers," Nittin Johari, chief financial officer of Bhushan Steel , said.
The hike in export duty in the budget for the year to March 2012 was widely expected as the country tries to underpin its rapidly-growing economy with investment in infrastructure. Steel Minister Beni Prasad Verma had also called for curbs on exports of iron ore on Friday.
"There is nothing dramatic but there are more positives for the steel sector in this budget than negatives," said Ankit Miglani, director at Uttam Galva Steels.
Officials said the withdrawal of export duty on pellets should encourage mining firms to set up more pellet plants, that will help the steel industry. Infrastructure-related investments announced by Finance Minister Pranab Mukherjee will also boost steel demand in the country, they added.
India has earmarked a corpus of 180 billion rupees in FY12 on rural infrastructure development fund and has estimated a total expenditure of 12.6 trillion rupees in the period, with a focus on eliminating supply bottlenecks in the food sector.
"There is a plan, under agricultural investment, to build grain silos, which are made out of galvanised steel. So, this will be a huge positive for the steel industry," Miglani added. SAIL's Verma said the continued thrust on infrastructure and manufacturing will help steel demand and higher support for housing sector "is a step in the positive direction."
The finance minister abolished import duty on stainless steel scrap from 2.5 percent earlier, helping producers lower their cost of production. JSL Stainless, India's largest stainless steel maker, expects savings of $50-$60 per tonne on purchase of scrap but overall reduction in input cost will be around $17 per tonne, its director Arvind Parakh said.
The BSE metal index ended flat at 15,348.8 points, with Tata Steel , JSL, SAIL and Uttam Galva falling 0.34-1.7 percent while JSW Steel and Ispat Industries ended slightly positive. The broader 30-share benchmark BSE index finished 0.69 percent higher at 17,823.4 points.