Indian metallurgists furious over unexpected high export duties

India's sudden and unexpected revision of export duties on steel products is likely to lead to short-term uncertainty and long-term structural ramifications in global steel markets, S&P Global Commodity Insights sources said May 23.

The Ministry of Finance said that since May 22, India has increased export duties on a number of goods, including iron ore and steel.

Market participants, however, noted that hot rolled boron coil, HS code 7225, can still be exported, although the official notice has not yet been published in the bulletin. According to sources, this may have either been intentional on the part of the government, or it may have been overlooked given that hot-rolled boron-infused coils have not been exported recently.

“I think it will take some time for Indian mills to make sure they can supply HRC with boron (or other alloy) added, as the added alloy can cause cracks in the coil edges,” said a trader from Shanghai. "Some Chinese factories still cannot control the quality of HRC with alloy added."

Export duties will apply even to countries with which India has free trade agreements, the sources said.

Domestic demand will support

Following the ministry's announcement, several end users told S&P Global that the revisions were positive in anticipation of a rise in steel exports, including commodities, pipes and automotive components, from India. The announcement was made with an eye on the 2024 national elections as a staggering rise in steel production costs from 2020 has rendered several infrastructure projects unviable, rising property and car prices, and rising inflation, the sources said.

“The government's goal is to curb inflation, not to stop steel exports,” said the Mumbai-based exporter. "Because they get a lot of foreign exchange earnings from steel exports."

Platts priced domestic HRC delivered to Mumbai at Rs 69,000/t at the May 20 Asian close, up 76.9% from Rs 39,000/t ($502) on Feb 5, 2020, according to data S&P Global. In contrast, Platts priced Chinese hot rolled coil in its warehouse in Shanghai 34.8% up from CNY 3,590/t on Feb. 5, 2020 to CNY 4,840/t on May 20. With this revision, market sources unanimously expect domestic prices to fall substantially.

“It will be interesting to see how OEMs [original equipment manufacturers] deal with steel mills,” said one North Indian OEM. “Even the April price increase, given the current situation, will not be easy for OEMs. Steel mills may try to negotiate a semi-annual agreement with a slight increase, or may roll over.”

“The export duty on a number of steel products will have a range of economic impacts and is likely to impact new investment in steel capacity building as well as Atmanirbhar Bharat Abhiyan for Steel,” the Indian Steel Association wrote. “As $23 billion worth of steel exports in 2021-2022 are at risk, we are asking the government to reconsider imposing an export duty.”