This move is expected to increase cost of production of steel producers like Essar and Ispat, who use scrap in their electronic arc furnaces .
It would also add to the cost of several secondary producers such as Rungta Steel, Bhusan Steel and stainless steel producers like Jindal Stainless.
"We may see between Rs 500 to Rs 1000 increase in price of steel as increase in duty on scrap in Budget has come at a time when international scrap prices have shot up from $235 a tonne till last month to $270 per tonne now. For our company, the 5% duty would mean additional annual outgo of about Rs 12 to Rs 15 crore," NC Mathur of Jindal Stainless Steel told FE.
The stainless Steel Association has decided to voice its concerns to the finance minister at their meeting on Wednesday.
Apart from the duty increase on scrap metal, the firming of global steel prices may see a further increase in steel prices even by integrated steel producers who do not use scrap but produce steel through the blast furnace route.
Mr Mathur said the Budget has reduced customs duty from 10 to 7.5% on several metals in their primary and semi-finished forms, including ferro alloys and concessional rate of 5% customs duty on nickel, which would have marginal impact on reducing input prices.
Mr Chidambaram has announced a whole lot of customs duty reduction on intermediaries and other metals primaries. He has cut customs duty from 10 to 7.5% (on primary and semi finished forms of metals) on alloy steel, aluminium, copper, zinc, ashes and residues of copper and zinc, tin, base metals (such as tunston, magnesium, cobalt, titanium etc.), calcinated alumina.
Customs duty has also been reduced from 5 to 2% on mineral ores and concentrates, from 10 to 7.5% on refractories and several raw material used by refractrories.
"The steel sector welcomes the duty corrections in the range of 2.5-3% on iron ore, zinc, refractories and catalysts. However, the rate cuts are below our expectations and will have only a marginal impact on our costs," Prashant Ruia of Essar Steel said.
"However, the industry appreciates the intentions of the finance minister to make India a global hub for steel," he added.
The duty on melting scrap, however, has been welcomed by sponge iron manufacturers, who feel that consumption of sponge iron for steel making by domestic companies would now increase.
Moosa Raza, president of Indian Steel Alliance (ISA), said the ISA welcomes the corrections on the inverted duty structure, the reduction in customs duty on zinc, refractories, iron ore and catalysts.
However, it is bound to feel the impact of the increase in MAT by 2.5%, which an expanding steel industry will not be able to recover in seven years. "The steel industry had hoped for some relief in the excise duty, especially on products that go into the construction. This has not happened," he added.