Steel export fall in May, export duty hike may hit cos’ FY23 earnings

5 Jul 2022

The on-year fall in May in exports for finished steel products has increased concerns in the market that the hikes in export duties on steel products at the end of May will add to the challenges of domestic steel companies in growing their overseas sales.

The government had hiked the export duty on most steel products by 10-50% with effect from May 22.

In May, exports of the steel products, which were covered in the export duty hike, fell 39% on year to 749,000 tn, according to a metals sector analyst at a rating agency. Official commodity-wise exports data for May has not been released by the government so far.

The previous month too had seen an on-year decline in the exports

According to Ritabrata Ghosh, senior vice president at ICRA, the road for domestic steel companies will get bumpier in 2022-23 (Apr-Mar) leading to a fall in exports by 25% on year.

He said the export duty hike would likely make products of domestic companies less competitive in the international markets. Ghosh also expected international steel prices to be lower in the current financial year.

The May exports data, showing a on-year decline, is an indication that fundamental factors hit steel exports even before the government announced the duty hikes on May 21.

Tushar Shah, Co-Chief Executive Officer, CareEdge Research said the revenue and profit of steel companies will be affected due to the export duty hikes making their steel exports expensive and hard to grow. “In FY22 (2021-22), exports had contributed around 12% of the total steel production in India and had touched a record high of 13.5 million tonnes (mln tn) which aided the revenues and profits of steel companies during FY22.”

Shah is hopeful that the import duty cuts on key raw materials for the steel sector may partially support the cost structures of steel makers, but a decline in steel exports, which hold a considerable share in overall production – the decline of which would adversely affect the overall profitability.

In a quarterly update disclosed by Tata Steel today the company said its crude steel deliveries from domestic operations in Apr-Jun were lower by 2% YoY “due to moderation in exports following the imposition of 15% export duty.”

Steel companies’ reliance on driving sale growth through exports will depend on domestic demand. In its annual report for 2021-22 Tata Steel said that it had opted for higher proportion of exports during periods of softness in domestic demand.

In the company’s annual general meeting recently, its chairman N Chandrasekaran was emphatic that the domestic steel industry in India was globally competitive and therefore they “should be able to expand capacity in value-added steel products for both ‘make for India’ and ‘make for the world’”.

“This is a defining moment in history where the Steel Industry can leverage its competitive position and export its products globally,” he said.

But the ground reality is turning out to be different with lower steel prices and export duty hike.