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Steel makers drop discounts after 20% safeguard duty

Product prices increase Rs 2,500 a tonne

Aditi Divekar  |  Mumbai 


No sooner was the 20 per cent safeguard duty imposed to protect the domestic steel industry from rising imports of the alloy did local steel producers raise hot-rolled steel coil prices by Rs 2,500 ($37.88) per tonne, by cancelling discounts offered to buyers earlier.

“There is no revised price list that has been sent by the steel producers to their clients, but when there is an inquiry, they mention verbally that the discounts have now been cancelled,” Nikunj Turakhia, director at Bombay Iron Merchants’ Association, said on Wednesday.

Early last week, Finance Minister Arun Jaitley announced a 20 per cent safeguard duty on import of hot-rolled flat products of non-alloy and other alloy steel with a width of 600 mm or above, for a period of 200 days. Hot-rolled coils has been one of the major products produced domestically and its import has hurt the domestic steel industry. Out of the total steel imports of 9.3 million tonne in 2014-15, HR coils accounted for nearly 25 per cent, India Ratings had said.

Meanwhile, traders said domestic steel producers have already officially informed Original Equipment Manufacturers (OEM) that price revisions can be expected in a phased manner over two-three months.

“In the past two months, steel product prices have only been rolled over and no revision has been made yet. Prices will come for review only in early October,” said a source from Essar Steel. Producers usually review product prices on a monthly basis and revision of the same takes place depending upon the demand-supply scenario in the domestic market.

Steel makers drop discounts after 20% safeguard duty
Regarding waIving off of discounts, an Essar Steel source said the company never offers products at discounted rates and reviews prices only on a monthly basis. Calls made to JSW Steel and Tata Steel were not returned till the time of filing the copy. Internationally, steel prices have declined by about $10 per tonne due to a supply glut in the market and hence traders here are of the view that Chinese exporters will now cut prices of the alloy being sold into India.

Traders said the exact price trend of Chinese imports will be clear once Chinese exporters resume business in full swing. China currently has several holidays starting from September equinox on Wednesday to a seven-day holiday starting October 1 on account of National Day Golden week holiday. “Even if China exporters cut prices of HR coil by about $10 per tonne, and we do not see it impacting the domestic market as the safeguard duty along with other import duties levied should continue to protect the domestic players,” said Turakhia.

Margins to improve as payout for DMF also lower

With this, the business climate for primary producers seems to have started to improve, as companies are beginning to get some pricing power due to the slew of duties levied to lower imports and also because of lower-than-expected payout towards the District Mineral Foundations (DMF). According to a notification released by the government last week, for mining leases executed before January 12, 2015 (the date of coming into force of the Mines and Minerals (Development and Regulation) Act, 1957) miners will have to contribute an amount equal to 30 per cent of the royalty payable by them to the DMF and for mining leases that are granted after January 12 this year, the rate of contribution would be 10 per cent of royalty payable.

Fixing DMF contribution at a significantly lower value compared to the earlier maximum limits offers relief to miners especially in the backdrop of weak commodity prices, rating agency India Ratings said in its report. The lower payout under DMF and the imposition of the safeguard duty on hot-rolled coils announced last week could benefit steel producers, who are reeling under a stressed credit profile given muted demand growth, low capacity utilisation and significant imports, it added.

First Published: Wed, September 23 2015. 22:35 IST