Duty imposed on coking coal; steel production cost to go up

The government today imposed 2.5 per cent duty on coking coal import, evoking reaction from the industry which said this could lead to increase in cost of steel production by Rs 200 a tonne.
Manufacturers, however, are not sure whether to pass it on to consumers given the subdued demand scenario.
The government also raised import duty on flat-rolled stainless steel products to 7.5 per cent from 5 per cent earlier and reduced customs duty for steel-grade limestone and dolomite, giving some relief to the industry.
While presenting his maiden Budget, Finance Minister Arun Jaitley said: "The domestic stainless steel industry is presently suffering from severe under-utilisation of capacity.

"To give an impetus to the stainless steel industry, I propose to increase the basic customs duty on imported flat- rolled products of stainless steel from 5 per cent to 7.5 per cent," he said.
Jaitley also proposed according investment-linked tax incentive for laying and operating slurry pipeline for transportation of iron ore. He also promised to resolve the "current impasse" on mining expeditiously, particularly of iron ore.

The Budget, however, also proposed levying an import duty of 2.5 per cent on coking coal, a key steel making input, from nil earlier.
Steel Authority of India (SAIL) Chairman C S Verma said the steel industry, particularly the integrated steel sector, would be impacted by customs duty increase on coking coal to 2.5 per cent.

Essar Steel's Executive Vice Chairman Firdose Vandrevala said, "...The budget will have an adverse impact on the cost of production, with increased custom duties on imported metallurgical coal. Rather surprising and disappointing, given the shortage of metallurgical coal, in our country."
JSW Steel's Joint Managing Director and Group CFO Seshagiri Rao said in view of the current shortage of domestic coal for both steel and power sector, increase in basic customs duty on coking coal from nil to 2.5 per cent and for steam and bituminous coal from 2 per cent to 2.5 per cent "requires to be reconsidered".
Indian steel makers mostly used imported coking coal for use in the blast furnace and the annual volume goes up beyond 35 million tonnes (MT). This is due to subdued and stagnant supply from state-run Coal India Ltd.

It requires 0.8 tonnes coking coal to produce one tonne of steel. At current price of USD 120 per tonne, the duty hike will escalate the cost of production by around Rs 200 a tonne, an industry expert said.
Asked whether steel makers would pass on the inflated cost to consumers, the expert said, "It will depend on the demand. The current demand scenario is not very encouraging and thus, we will take a call later.