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‘Customs duty hike on steel won’t take pressure off producers’

Increase in import duties on steel will not alleviate much of the pressure on producers hit by cheap imports of the metal and weak demand, Fitch Ratings on Thursday said. The government has increased the basic customs duty on certain long and flat steel products by 2.5 per cent.

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

However, Fitch does not expect domestic steel makers' realisations to improve because steel demand continues to be weak, particularly as the economy moves into the low demand season during June-September due to monsoons, it added. The increase in customs duties and the implementation of an anti-dumping duty on stainless steel are part of the government's measures to develop the manufacturing sector under its "Make in India" campaign, it said.

The increase in duties will likely have a larger impact on imports from China. Country's steel imports rose 71 <g data-gr-id="24">per cent</g> to 9.3 million tonnes MT in 2014-15, data from the government showed, with most of the increase due to shipments from China (around 3 MT), it said. Higher duties are not likely to reduce imports from Korea and Japan, which are generally of higher value-added steel and covered under free trade pacts, it added.

The steep increase in imports and weak demand for steel have significantly impacted the profitability of domestic steel producers over the last <g data-gr-id="22">two quarters</g>, it said. Import duty on flat steel products has been increased to 10 per cent from 7.5 per cent, whereas that on long steel products has been raised to 7.5 per cent from 5 per cent, said a Central Board of Excise and Customs (CBEC) notification. 

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