Amidst the weak global demand and feared recession, the removal of export duty on steel may not boost shipments in the near future.
Steel exports have more than halved in the first seven months of this fiscal year, which ended October. Finished steel exports dropped 55 per cent to 4 million tonnes (mt) between April and October due to weak demand and the export levy imposed in May.
In a sign of contracting global trade, India’s exports in October fell below $30 billion for the first time in nearly 20 months. However, the drop in core exports (non-oil, non-gems & jewelry) by about 17 percent year-on-year in October is more alarming.
Imports plunged to the lowest level in eight months, with a fall recorded in non-oil imports too. The trade deficit remained elevated above $25 billion for the fourth month in a row driven by a sharp moderation in exports.
In an effort to provide some stimulus to the domestic steel industry, the government has withdrawn the 15 percent export duty on the same. Still, the profit margins of the companies remain tight due to overall high cost of operations- credit goes to sharp rupee depreciation which is increasing the prices of imported raw material. Furthermore, international steel prices have fallen even as several global steel companies have cut production.
With exports becoming unviable with elevated raw material and energy costs nibbling at margins, the operating profits of the domestic steel industry slumped to a nine-quarter low in the September quarter.