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Budget 2011: Steel

The Indian steel sector has witnessed a roller coaster ride of late wherein it has witnessed a significant spurt in demand due to expanding oil and gas sector, large infrastructure spending coupled with growth in housing, consumer durables and auto sectors. India became the fourth largest producer of crude steel in the world in 2010 as against the eighth position in 2003 and is expected to become the second largest producer of crude steel in the world by 2015. As per World Steel Association (WSA), India was the fourth largest producer of crude steel during January–September 2010 producing produced 50.1 m tonnes (MT) crude steel during the period. Currently, with the government’s increased emphasis on infrastructure, we believe the sector is poised for significant growth over the medium to long term. As a matter of fact, India’s per capita steel consumption continues to be low at 46 kg as against the global average of 198 kg. Thus, this further strengthens our belief that the potential ahead for India to raise its steel consumption is high. The domestic steel industry, which raised prices in wake of some stimulus measures being withdrawn after the last budget, has warned of another price hike if stimulus is completely withdrawn in Budget 2011-12.

 Budget expectations
  • Hike in export duty on all types of iron ore forms.
  • Increase in import duty on steel to 20% from the current 5%.
  • Increase in excise duties from current 8%.
  • Infrastructure status to the steel industry

     Budget Measures
  • Higher allocation towards rural infrastructure and fiscal incentives to infrastructure projects.

  • Basic customs duty on steel reduced from 10% to 5%. Export duty on iron ore, a key input, increased to 20%.

  • Surcharge on domestic companies reduced to 5% from 7.5%

  • Rate of Minimum Alternative Tax (MAT) proposed to be increased from 18% to 18.5% of book profits.

     Budget Impact
  • Increased focus on infrastructure development would result in development of highways, ports, power projects, bridges etc, which will consequently increase the demand for steel.

  • Increased spending on rural development and low income housing will result in higher steel consumption.

  • Reduction of basic custom duty and levy of higher export duty on iron ore will encourage domestic value addition vis-a-vis imports. It will also remove fiscal anomalies and to provide a level playing field to the domestic industry.

     Company Impact
  • Increase in spending on infrastructure and tax benefits due to lower customs duty and surcharge to be beneficial to major steel players like SAIL, Tata Steel and JSW Steel who account for bulk of the total steel production capacity in India.

  • Increased spending on urban and rural development schemes, especially housing and other infrastructure is likely to increase the demand for long steel products, a positive for companies like SAIL and Tata Steel, which have a large dealer network spread across the country.

  • Increase in demand for auto and consumer durables will result in rise in consumption of flat steel products. Companies like Tata Steel, JSW Steel and SAIL are poised to seize the opportunity here.

    Budget Impact: Steel Sector Analysis for 2010 
    Latest: Performance Of Steel Stocks | Steel Sector Report

  • Complete coverage – Budget 2011

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