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Sector Focus : Steel

Steel industry: Post-budget

State of the industry (2000-01)

Tariffs, prices and landed costs

	Tariffs (per cent)				Prices (Jan 2001)		Landed costs (Rs/tonne)
	Customs		Excise		Dom- estic	Intnl	Pre- budget	Post budget
	2000-01	01-02	2000-01	01-02	(Rs/ton)	($/ton)
GP/GC	44.0	40.4	16.0	16.0	26,300	428	38,782	37,802
CR coils	44.0	40.4	16.0	16.0	21,500	267	24,397	23,781
HR coils	32.6	30.0	16.0	16.0	17,500	170	15,363	15,062
Plates	44.0	40.4	16.0	16.0	-	-	-	-
Structurals	44.0	40.4	16.0	16.0	15,600	298	26,861	26,182
Bars and rods	44.0	40.4	16.0	16.0	14,350	255	23,444	22,851
Alloy steel	44.0	40.4	16.0	16.0	-	-	-	-
Billets/Slabs	32.6	30	16.0	16.0	-	180	16,095	15,779
Pig iron	21.2	19.6	16.0	16.0	8,600	110	10,027	9,898
HBI/Sponge iron	32.6	30.0	16.0	16.0	6,000	-	-	-
Ferro alloys	32.6	30.0	16.0	16.0	-	-	-	-
Steel melting scrap	9.7	9.2	16.0	16.0	6,100	81	8,535	8,495
Iron ore, pellets	9.7	9.2	16.0	16.0	-	-	-	-
Coking coal	9.7	9.2	-	-	-	-	-	-
Non coking coal	32.6	30.0	-	-	-	-	-	-

HBI: Hot briquette iron
Note:
International prices are fob prices.

Source: CRIS INFAC

• Demand for steel is expected to increase marginally, due to low growth in construction and project related activities (such as the general engineering sector), marginal growth in agricultural output, and a decline in automobile production during the July-December 2000 period.
• The demand-supply situation is expected to be balanced, as producers maintained operating rates. No new investments were made for increasing capacity.
• In the international market, prices of flat products have declined significantly, due to an increase in inventories in the US and the EU, and a slow-down in the US economy. (Prices reached their peak levels in May-June 2000.) Domestic prices declined due to a decline in international prices. (Exports to the US were low due to the expected imposition of anti-dumping duties on Indian HR coil exports.)
• Prices of long products were also under pressure due to a marginal increase in domestic demand. Prices of steel intermediaries, such as sponge iron and pig iron, declined due to low demand for finished steel.
• During the April-September 2000 period, margins of domestic steel manufacturers remained low. Margins have been declining due to low realisations in the domestic and export markets, high interest rates, and depreciation.

Steel: Budget impact

Impact factors

Company name	Impact	Impact factors
Essar Steel Ltd.	Pos	A,B,C,E
(8.15, 7.75)
Ispat Industries Ltd.	Pos	A,B,E
(3.90, 3.90)
Jindal Strips Ltd.	Pos	A,C,E
(78.00, 89.90)
SAIL	Pos	A,B,C,D,E
(7.95, 7.75)
TISCO	Pos	A,B,C,D,E
(158.85, 154.50)

Note:
Figures in brackets indicate the closing share prices, on February 27, 2001 and February 28, 2001, respectively.
pos= positive neg= negative neut= neutral

Source: CRIS INFAC

A: The reduction in customs duty (due to the removal of surcharge) is not expected to have a significant impact on steel producers as landed costs are expected to decline marginally. However, the expected increase in demand from the automotive and construction sector is likely to have a marginally positive impact on the sector.

B: The increase in customs duty on second grade material from 25 per cent to 35 per cent is expected to benefit HR producers such as SAIL, Tisco, Essar and Ispat.

C: The reduction in customs duty on raw material is expected to have a marginally positive impact on steel producers. Producers such as SAIL, Tisco, Essar, and Jindal Strips import around 30-40 per cent of the total raw material consumed.

D: The increase in railway freight, by 2 per cent is expected to have a marginally negative impact on SAIL and Tisco, as a significant proportion of finished steel is transported by railways.

E: The reduction of surcharge on corporate tax, from 13 per cent to 2 per cent and the expected decline in interest rates, is expected to have a positive impact on producers.

Rediff-CRISIL Budget Impact Analysis
Budget 2001

Disclaimer: CRISIL has taken due care and caution in compiling this report. Information has been obtained by CRISIL from sources which it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. CRISIL is also not responsible for any errors in transmission and especially states that it has no financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of its web site.

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