India: Govt rolls back duty on steel, iron ore and pellet exports

In a highly significant development late on 18 November 2022, the government rolled back the imposed hefty export duties on steel and steelmaking raw materials. Export duty on high grade ore and pellets has been reduced to nil. Similarly, the 15% export duty levied on pig iron, hot-rolled and cold-rolled alloy and non-alloy flat steel products of 600mm or more in width has also been slashed to nil.

It is to be noted that on 22 May, 2022, the Indian government had imposed these duties in a bid to preserve higher domestic supplies and control rising prices. Following this move, exports of iron and steel products witnessed a significant drop.

Indian steel exports dropped a steep 53% in April-September, 2022 or first half of financial year 2022-23 (H1FY23) to 5 million tonnes (mnt) against almost 11 mnt seen in the same period in H1FY22, reveals data maintained with SteelMint. Flat steel exports declined a substantial 44% to 3.66 mnt (6.53 mnt) y-o-y, semis plunged 66% to 1 mnt (3 mnt) and longs by a whopping 69% to 0.43 mnt (1.40 mnt) in the period under review.

Exports of iron ore and pellets in H1 FY23 stood at 6.98 mnt, declining steeply by 63% from 18.91 mnt in the same period last fiscal.

Rationale & impact

Steel exports account for 15-20% share in India's steel production. The mills tried to work around the tax by resorting to exports of boron-added hot rolled coils (HRCs). But there were not too many takers for the same in overseas markets. Eventually, Indian mills concentrated on the Middle East and Southeast Asian markets like Vietnam that traditionally import considerably. But, overall, demand for finished steel has been weak globally amid currency slides and inflationary tendencies.

The EU enjoyed a leading 24% share in India's steel exports in calendar 2021.Inflation, fuelled by spiralling natural gas and energy prices, has ensured a sharp demand drop for steel in Europe. That apart, demand for boron-added HRCs was low in Europe and other regions, contributing substantially to India's low export volumes in H1.

This has recently pulled down Steelmint's India HRC export index to $518/t FOB east coast. The index has fallen to around 2-years' low, as per SteelMint records.

However, with the removal of the export duty, exports may pick up which in turn may support the domestic pellet and steel prices. Notably, domestic HRC and rebar prices have seen a downward correction of INR 8,000-11,000/t since the imposition of export duties in May 2022.