Imported, local HR coil prices gap to narrow

The steel industry expects the gap between landed hot rolled coil (HRC) prices and domestic prices to narrow following the 5 per cent reduction in the peak customs duty from 25 per cent to 20 per cent coupled with the abolition of 4 per cent special additional duty (SAD).

Industry sources said that steel manufacturers planning future price hikes may not be able to implement price revisions, at least for now.

A senior Tata Steel executive said: "The peak customs duty reduction is likely to bridge the gap between landed and domestic prices, which could impact spot prices for a while. However, since Tata Steel has around 90 per cent of its trade in long-term contracts, the impact will be almost negligible."

The demand-supply situation is also critically balanced, which might offset the negative impact of lower import duty, he added.

The current price of imported HR coil in rupee terms is around Rs 25,000 per tonne, while domestic prices hover around Rs 22,500 - Rs 23,000 per tonne. A report by Cris Infac says that the landed cost per tonne of HR coils will decline by Rs 2,000, thereby resulting in a drop in domestic prices.

Around 1.5 million tonne of HR coil is imported in the country. A steel sector analyst said the duty cut and rupee appreciation could encourage higher imports.

Analysts said, "Domestic prices usually follow global price trends, which have been improving continuously because of the rise in input costs and a sustained demand. In this case, however, there is likely to be some pressure on spot prices, at least in the short term since stand alone cold rollers will definitely take advantage of lower import prices."

The report also said the impact will be partially the savings on coal imports. Steel Authority of India and Tata Steel are likely to be the beneficiaries from the drop in the duties on coal. The benefits accruing to Jindal Vijaynagar Steel could be significant as it imports a significant quantity of coal.