Customs duty comeback fuels scrap price: NCDEX

The Budget proposal to re-impose 5 per cent customs duty on iron and steel melting scrap has started pushing up the price of scrap in the domestic market.

The import duty on steel melting scrap was reduced to zero (per cent) in 2004-05 as global steel prices were high. Scrap prices, internationally, have also shot up to $270 a tonne, from $235 a tonne till last month.

According to the NCDEX knowledge management team, "The duty on melting scrap will push up consumption of sponge iron for steel making by domestic companies, as cost of scrap will become higher than that of sponge iron after the duty is added. But secondary steel producers in the small and medium sector will have to continue using it as most do not have a blast furnace."

According to a study by the NCDEX team, "Reducing the duty on ready steel will flood the Indian market with Chinese steel products. Only duties on alloy steel and stainless steel were cut to 7.5 per cent from 10 per cent."

After the Budget, steel companies have raised their product prices by Rs 1,500-2,000 a tonne.

"The price rise has been effected in the wake of a recovery in the demand across Asia, coupled with the hope of prices remaining upwardly mobile. Prices of hot rolled coil have been increased to Rs 23,000 a tonne, which could lead to a rise in the prices of downstream flat steel products like cold rolled coil and galvanised steel," the NCDEX team said.

"The reduction in customs duty is likely to have a marginal impact on the domestic prices," it added, as the impact of the 2.5 per cent reduction in customs duty has been negated by the 4 per cent countervailing duty. Though weak, the impact will be negative for all non-ferrous metal segments such as aluminium, copper and zinc as the reduction will bring down the difference between international and domestic prices," the team added.