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Steel export duty: Temporary measure or long term overhang?

ICICI Securities 03 Jun 2022

What's Buzzing:

Recently an export duty of 15% had been levied on steel intermediaries and on major steel products. These duty changes were effective from May 22, 2022.

Context

In order to improve availability of steel in domestic market, export duty has been levied on steel intermediaries and key steel products. Export duty of 15% (from nil earlier) has been levied on major steel products.

Our Perspective

The export duty on steel exports has been levied with a view to control inflation. A parallel can be drawn with CY08 wherein similar types of export duties were levied at that time also to tame inflation. In CY08, the duties were short lived, as they (export duties) were revoked that time partially within a month and completely within five months. Hence, industry sources indicate that the 15% export duty is more like a temporary measure and will be reversed once the high inflation falls to comfortable levels. However, no specific timelines have been given for the reversal of export duties. Steel companies have also indicated that they are looking more long term and would continue to export albeit at a moderate pace. For example, in FY22 JSW Steel’s export share in overall volumes was at 28%, which the company expects to moderate to ~15-20% levels in the current financial year FY23E. Majority of the listed large steel companies are also planning to continue their announced capex plans as domestic demand is likely to grow at a healthy pace over the medium to long term horizon.

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