Pig, sponge iron makers smile as scrap is taxed

Steel intermediary manufacturers have welcomed the 5 per cent customs duty on scrap. This will benefit the sponge iron and pig iron manufacturers, says S K Sarna, managing director, Nilachal Ispat Nigam (NINL), one of the largest manufacturers of pig iron in the country with annual output of over six lakh tonne per annum.

Sponge iron prices rose by about Rs 500 per tonne soon after the announcement of 5 per cent customs duty on scrap in the Budget. Scrap was earlier exempted from duty.

Pig iron price is expected to follow suit and may be scaled up by Rs 500 to Rs 1,000 per tonne, says Vishal Agrawal, managing director, Visha Steel. Visha Steel, another major pig iron producer, had recently gone public with a IPO to raise funds for an upstream project to produce special and alloy steel.

Agrawal pointed out that there was a double bonanza for the sponge and pig iron producers as finished steel prices were showing signs of firming up, besides the imposition of customs duty on scrap now. Scrap is usually used as a replacement for pig iron and sponge iron for making steel.

Agrawal, however, pointed out that reduction in customs duty on alloy steel from 10 per cent to 7.5 per cent will have marginal effect on the domestic alloy steel producers as the commodity is used in specific industries only. So the import duty will be too small to hurt the domestic producers.

"On the other hand it is good to align the customs duty structure with that of the Asean nations which was expected by the industry," he said.

Similarly the duty cut on iron ore from 5 per cent to 2 per cent will hardly affect the domestic mining companies, as there is hardly any import of iron ore now.

On the contrary, the reduction in customs duty on refractory material will help the steel industry, which is a major consumer of the material, Sarna pointed out.