No need to cut steel import duty: Crisil

The sharp increase in steel prices "" from Rs 15,000 a tonne in January 2002 to Rs 23,000 a tonne in October this year "" had only a limited impact on most end users of the product, a report prepared by rating agency Crisil said.

The report provided examples of how steel accounted for about 5 per cent of a car's total manufacturing cost, less than 5 per cent of road construction costs and about 10 per cent of building construction costs.

The report assumes significance in the light of the ongoing controversy over the demand by the end users of steel for an import duty cut on the alloy in view of the sharp rise in its prices.

Customs duty reduction should be based on the government's long-term policy for the steel sector and not on the prevailing price level, Mukesh Agarwal, head of corporate ratings, Crisil, said.

Given the cyclical nature of steel price movements, a duty cut during the boom period could affect the margins of steel companies later, he said.

The financial performance of most steel companies have remained unchanged and high steel prices have mainly led to an improvement in their bottomlines.

However, if global steel prices continued to remain firm, then there was some room for a duty cut, Agarwal said.

Financial institutions and banks have an exposure of Rs 40,000 crore on steel, which accounts for 15 per cent of their non-performing assets (NPAs). So, if steel prices remained firm it would enable lenders to recover their dues, he added.

According to SC Mathur, director, Cold Rolled Steel Manufacturers' Association (CORSMA), the rise in hot rolled steel prices has affected cold rolled steel as the former constituted about 70 per cent of the cost of production of the cold rolled material.

Domestic steel prices have moved in tandem with global prices. The global price of hot rolled coils rose from $241 a tonne in January 2002 to $350 a tonne in October 2003.

A cut in the steel tariff could result in dumping in India, an industry analyst said.