The depreciation of rupee to 80 a dollar has lessened domestic steel firms’ export tax burden by a little over three percentage points and provided them with the leeway to increase capacity utilisation as imports will no longer remain lucrative for traders.
However, since domestic steelmakers mainly use imported coking coal in the absence of local availability to fire their blast furnaces, imports of the raw material will become expensive. Industry officials said the costlier raw material will not have any significant impact on production cost immediately as the impact comes with a lag.
One industry source said steel price, falling continuously since the first week of April, is unlikely to go up soon even as imports of both finished steel and coking coal will be getting more expensive. At best, this will help the industry to boost capacity utlisation level which currently stands at 80-85% and reduce their inventory level.
Struggling to rein in inflation, the government had with effect from May 22 imposed 15% tax that covered around 95% of the steel export basket. From 77.5 against dollar on May 23, the depreciation to the current level has absorbed a little over three percentage points of the tax burden.
While any further depreciation of rupee will provide additional support to export competitiveness, it will make imports less attractive. Industry sources said domestic prices and landed import costs are almost at par in the local market at around Rs 59,000-60,000 a tonne for hot-rolled coil (HRC), the benchmark steel product.
“A weaker rupee will make imports costlier and thus, not lucrative for the importers. Those of us make steel through the blast furnace route will have to fork out extra for coking coal imports,” an industry source said.
It generally taken 0.8 tonnes of coking coal to make one tonne of steel through the blast furnace route, which comprise around 70% of the domestic steel manufacturing capacity.
Rating agency ICRA earlier estimated the duty imposition will shrink India’s exports of finished steel by 25% in the current fiscal. Crisil pegged it 40%. India exported 13.5 million tonnes of finished steel last fiscal, up 25% over 2020-21.
The lifting of the export duty on HRC would help the industry to regain its lost market in the international market and also help in replenish the forex kitty.