Indian steelmakers hoping for an early end to the export duty levied earlier this year may have to wait till next year’s Union budget, with the government deciding to examine the metal’s price trend over an extended period before removing the levy.

Whereas domestic steel prices, which fell for three months after the export duty was imposed, firmed up marginally in September, and the government wants more data on prices and the demand-supply situation before reworking the duty, two officials aware of the matter said.

According to one of the two officials cited above, who spoke on condition of anonymity, higher local prices and expectations of healthy domestic demand may help steelmakers liquidate their inventory within the country. However, the global situation could change things quickly, and the market has to be understood in entirety for some more time before a call on duty revision is taken, he said on condition of anonymity. Domestic steel inventories have swollen in the past few months thanks to lukewarm local demand and the effect of the export duty.

A third official with the revenue department said the steel ministry is yet to reach out for a rollback of the export duty. “If the ministry wants a rollback, it should write to us. We have not received any such request yet. In case we get it, we will be open to examining it. Otherwise, in the normal course, we will look at it during the coming budget,” the official added.

The decision to postpone a duty revision would be a setback for domestic steelmakers, hoping an early duty relief would help release the excess inventory in international markets.

A query emailed to the ministries of finance and steel remained unanswered till press time.On 22 May, the government imposed an import duty of 15% on select steel products, including pig iron, flat-rolled products of both carbon steel and stainless steel, bars, rods and non-alloyed steel in a bid to check rising steel prices in the domestic market, address shortages, and rein in inflation. Duty changes were also made for iron ore pellets, where a 45% export duty was imposed while export duty on iron ore and concentrates was raised from 30% to 50%.

Last fiscal, the steel industry had exported a record 13.49 million tonnes, up 25% from the previous year, taking advantage of the increase in demand and prices worldwide. The trend continued into the early months of this year, but things changed thereafter as domestic demand and prices fell.

“As a result of the export duty, the domestic price of benchmark hot rolled coils has fallen over 26% this fiscal from a record level of over ₹76,000 per tonne in April to just over ₹56,000 per tonne now. The reduction or removal of duties may enable companies to tap overseas markets for their products amid flat domestic demand and risk of available export opportunities also drying up over concerns of a looming recession in Europe and American markets,” a top executive at one India’s largest private sector steelmaker said on the condition of anonymity.

“The Ukraine-Russia conflict had opened doors of European markets for Indian steelmakers, but the duty has made prices uncompetitive now. A duty revision, even now, will help the sector overall without adding to inflationary pressure on the economy,” he added.

Prices recovered in September, with hot rolled coil prices gaining about ₹2,000 per tonne. Analysts expect steel prices to firm up further in October and November as demand picks up, but the global situation, including the consumption slowdown in China and interest rate hikes by central banks, may arrest demand pick-up and dampen prices again.

“The 15% export duty on steel continued to weigh on engineering exports as India’s iron, and steel exports dropped by 62.2% in August on a year-on-year basis,” said Engineering Export Promotion Council chairman Mahesh Desai. EEPC has also proposed duty rollback on steel while requesting the commerce and industry ministry to include steel under RoDTEP (remission of duties and taxes on export products scheme) so that the adverse impact of export levy could be negated.

Engineering exports also fell by 12.6% in August and 17% in September, and exporters have attributed it partially to the export duty on certain steel products. In August, engineering outbound shipments to China declined by 70% to $173.7 million, compared with $619.5 million in the same month last year amid its zero-covid strategy. Shipments to the EU fell 27.3% to $1.47 billion.

On an overall basis, the export duty has driven down steel exports from 1.5 million tonnes in April to just over 500,000 tonnes in July. Iron ore exports also fell 69.1% in April-July. What is hurting companies now is that despite the fall in imports, domestic consumption has not increased and has fallen from about 10 mt in March to less than 8 mt a month now. The inflation push on semi-finished steel has also eased from the highs achieved in April.

In July, the Centre also imposed a windfall tax on petroleum products and crude oil to prevent firms from making abnormal profits when oil and product prices were rising globally. The tax was thereafter revised on a few occasions under a fortnightly review. The steel industry is also hoping for a similar trend-based revision of duty.