Metal stocks closed upwards on Thursday as the finance minister made a series of announcements impacting the sector. However, quite a few companies are not cheering.
Arun Jaitley’s proposal to impose 2.5 per cent basic customs duty on metallurgical coke, in line with the duty on coking coal, will result in a rise in cost of steel production by Rs 450-500 a tonne. Most large steel companies will prefer to pass on the increased burden, as coal forms a large chunk of their manufacturing cost. The impact of reduction in the duty on steel-grade limestone and dolomite from five per cent to 2.5 per cent will be marginal.
“The finance minister has tried to please stainless steel makers only, with his move to increase the basic customs duty on their imported flat-rolled products from five per cent to 7.5 per cent. It will, however, have no benefit for carbon steel makers. Our costs will go up by $6-7 a tonne. We have to see if we can raise the prices for end-consumers,” said R K Goyal, managing director, Kalyani Steels.
Stainless steel makers like Steel Authority of India and Jindal Steel will benefit. “The hike in duty on stainless steel will allow the local producers to have a healthy competition with importers,” said Mahendra Shah, president, Bombay Metal Exchange. “The stainless steel industry was under a lot of pressure, so the Budget will give them some relief,” said Ankit Miglani, deputy managing director, Uttam Galva Steels.
The industry is disappointed at the proposal to review the royalty on minerals, which will enhance states’ revenue. The mining industry feels the move is uncalled for when it is passing through a crisis in most states and production is much below the capacity.
“If the royalty rates are increased to 15 per cent as demanded by state governments, the mining industry will be left with nothing,” said Rahul Baldota, executive director, MSPL, an iron ore miner in Karnataka.
Currently, mining firms pay 10 per cent royalty on major minerals and the previous revision was in August 2009. Any more revision will upset the capital expenditure plans of miners and dampen their morale, already low, he said. “Actually, the royalty on minerals should be reduced in states like Karnataka,” added Goyal.
“On the other hand, the hike wouldn’t impact much on the eastern sector, which produces medium to high grades. These grades are readily absorbed in the market or/and can be exported, allowing the miners to create room to pay the extra royalty (if increased),” said Prakash Duvvuri, head of research at OreTeam Research.
Glenn Kalvampara, secretary of Goa Mineral Ore Exporters' Association, said: “The government has made a note of issues in the mining sector and are ready to address it. This is a positive move but what needs to be done next on a priority basis is that various ore-grade bands need to be made apart from the already existing ones, so that lower iron ore grades also find some place.”
He said there should be higher royalty for higher grades and lower for lesser ones. The aluminium industry has welcomed the proposal to double export duty on bauxite from 10 per cent to 20 per cent. This will lead to more investments in the sector, said K S S Murthy, secretary-general of Aluminium Association of India.
Navin Sharma, vice-president of sales and marketing at Jaipur-based Gravita India, said reduction in duty on battery scrap was a welcome move. “Korea enjoys zero duty and ours was 10 per cent. Now that it has been reduced to five per cent, it is surely going to help.”