Budget 2004: Steel
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Finance minister has reaffirmed the thrust on infrastructure development by announcing new infrastructure projects. |
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Decrease in freight rate by 5.3%. |
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Tax sops maintained for the housing sector. |
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Surcharge on corporate tax halved from the current 5% to 2.5%. |
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Increased spending on infrastructure will be a key positive for the steel sector, as the demand for steel will get a boost. Government has announced a total outlay of Rs 600 bn spread over few years for the development of roads, rails, airports and seaports. The government's initial funding for new projects will be about Rs 20 bn per year. Last year, road projects created a demand of over a million tonnes for steel. |
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The government chose to continue the tax sops currently available to the housing sector. This is a positive step not only for the concerned sector but also for steel, as housing sector development creates demand for steel. |
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The Railway Budget has reduced the freight rate on certain products, which include iron & steel, pig iron and iron scrap. Decrease in freight is likely to positively impact the cost of production of steel companies as freight cost forms a substantial chunk of a steel companies' operational expenses. To put things in perspective, freight alone forms about 9% of net sales for Tisco. SAIL is also likely to benefit from this reduction in freight rate. |
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The reduction in the surcharge on corporate tax will benefit companies, as it would have the effect of reducing their tax outgo. |
| Excise duty on steel (rods, bars and galvanized sheets) used for construction should be brought down to 8% from the current 16%. This would boost housing and infrastructure activity. |
| As per CII, the current differential in customs duty of 5% between cold rolled coils and hot rolled coils should be maintained in order to encourage value addition. |
| Impose additional 16% customs duty on ship breaking. |
| Imposition of provisional duties against imports of cold roll flat products from US, European Union, Japan and Canada. |
| Budget 2000-01 |
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Budget 2001-02 |
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Budget 2002-03 |
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| Excise on steel to be levied at the ex-factory price instead of the depot price (which includes freight component). Export earnings brought under the tax net. Measures taken to boost housing sector like increasing the tax exemption limit on principal outgo of a housing loan from Rs 10,000 to Rs 20,000 and maintaining Budget 2000 tax incentives. |
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Surcharge on customs duty reduced. Steel purchased for Gujarat relief work to be exempt from Excise duty. Higher outlay on infrastructure projects.
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Custom duty on seconds and defective (on hot rolled coils) increased to 40% from the earlier 35%. Custom duty on ship breaking scrap increased to 15% from the current 5%. CVD (counter veiling duty of 16%) and SAD (special additional duty) are exempted. Custom duty on graphite electrode of size above 24'" reduced to 15% from the earlier 25%. Custom duty on refractory raw material (micro silica/fume silica) reduced to 25% from the earlier 35%.
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| [Read more on Budget 2000-01] |
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[Read more on Budget 2001-02] |
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[Read more on Budget 2002-03] |
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| Key Positives |
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| The per capita steel consumption in India is abysmally low at around 24kgs as compared to 87kgs of China and over 400kgs in Malaysia. This wide gap in relative steel consumption indicates that the potential ahead for India to raise its steel consumption is high. |
| Domestic steel companies have benefited immensely on the back of rise in international steel prices and demand. The prices continue to remain strong and the demand is likely to sustain in the current year on the back of demand from countries like China. |
| A robust housing sector, with growth potential in the auto and the consumer durables sector is likely to be a big positive for the steel sector. |
| Indian steel producers are one of the lowest cost producers in the world. With exports on the rise leading to better realisations, the bottomline of the companies is likely to be positively impacted. |
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| Key Negatives |
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| The biggest threat to the steel sector continues to be from dumping by international companies. With growth in global economies slowing down, international steel companies will be looking at markets to dump their products. In such a scenario, Indian companies stand to lose. |
| Anti dumping duties imposed by the US on Indian steel and continuous pressure by the US steel industry on its Government to impose further levies under Section 201 could affect steel exports going forward. |
| In the medium-term, the overcapacity in the steel industry of nearly 250 million tonnes and the cyclical nature of steel industry could exert some pressure on prices. |
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