Higher import duty to ease pressure on domestic steel prices: Moody's

Higher import duty on flat and long steel products will help in reducing pressure on domestic prices which have been going down due to cheap imports from countries like China, ratings agency Moody's said on Monday.

"The import duties will ease some of the downward pressure on domestic steel prices from cheaper Chinese steel imports. Indian steel prices have dropped 27% over the past 12 months owing to a 70% increase in cheaper imports, one third of which came from China," it said.

Last week in a much needed relief for domestic producers, the government increased the basic customs duty (BCD) on certain long and flat steel products by 2.5%.

Import duty on flat steel products has been increased to 10% from 7.5%, whereas that on long steel products has been raised to 7.5% from 5%.

The ratings agency said that higher import duties on carbon steel products are credit positive for Tata Steel (Ba1 stable) and JSW Steel (Ba1 stable) as they will support Indian steel prices and contribute to steel producers' profitability.

"As of the quarter ended March 31, 2015, cheaper imports led to a 6% decline in realised per tonne prices at Tata Steel, versus a year earlier, and a 10% decline at JSW Steel during the same period," it added.

Although Indian steel demand is poised to outpace other emerging markets, competition from imported steel is likely to remain strong, keeping some pressure on Indian steel prices, Moody's said.

Global industry body World Steel Association expects steel demand in India to grow by 6.2% in 2015 and 7.3% in 2016, compared with a decline in all other large emerging countries except Turkey, it added.

Moody's expects lower Indian steel prices will likely help in reducing the cost of manufacturing and infrastructure building, which are two important pillars of the government's pro-growth agenda.

Country's steel imports rose 71% to 9.3 MT in 2014-15, data from the government showed, with most of the increase due to shipments from China (around 3 MT), it said.

However, last week another ratings agency Fitch projected a different scenario for the domestic steel industry.

Fitch Ratings said it does not expect Indian government's increase in customs duties on steel imports to alleviate much of the pressure on steel producers, which have been challenged by cheap imports and weak domestic demand.

The higher customs duty is likely to result in only a marginal increase (between Rs 500-1,100 per tonne) in the landed costs of imported steel products, which in the short term will help close the gap between domestic output and cheaper imports, it had said.