Ajoy K Das

Kolkata: Steel exporters seem to be under attack from every conceivable side. The export tax imposed by the government effective May 10 may be a minor devil.

A bigger dampener, somewhat predictably, is the price of crude.

With oil prices surging, container shipping rates for various ports in the US have gone up by 32% to around $3,300 per container from $2,500, starting May 1. For Europe, the rates are up by around 12%.

This sharp increase in shipping rates will negate much of the salutary impact of a weakening rupee and moderation in steel prices, say exporters.

P K Shah, past chairman, Engineering Export Promotion Council said, “Export margin improvements from the depreciating rupee and lower steel prices will be eroded by rising shipping costs, which exporters cannot pass on to the buyer. Freight rates to Europe have risen less, but then container shipments of low value added items like castings and forgings to Europe is less than that to US markets.”

To make matters worse, container shipping rates from China to US ports are just 60% of the freight rates from India, which clearly benefits Chinese steel producers.

According to leading exporters, since all deliveries to overseas buyers are on a cost, insurance and freight (cif) basis, exporters would have to bear the burden of higher freight rates with no scope of re-negotiating contracts to offset the higher shipment costs.

Incidentally, almost 40% of the total Indian merchandise exports of $150 billion is accounted for by the US where recessionary trends have already put export realisations under pressure.

The government last week imposed a 15% export duty on products such as pig iron, ferrous waste of iron and steel, iron ingots, semi-finished iron or non-alloy steel products, while an export cess of 10% has been fixed for flat rolled products of iron or non-alloy steel, bars and rods, hot rolled coils of iron and non-alloy steel. Flat-rolled products of iron or non-alloy steel, plated or coated with zinc will attract an export duty of 5%.

The Rs 4,000 per tonne price cut effected by integrated steel producers in case of benchmark hot rolled coils and notification of 5-55% export tax on various grades of finished steel products has resulted in a Rs 2,000 per tonne price reduction in steel products at the stockyard level.

As for the rupee, the currency closed last week at Rs 41.35 per dollar but bounced back to Rs 42.04 at close on Monday.

Exporters booking their dollar earnings in the forward market expect the Reserve Bank of India to intervene and stabilise the rupee at levels of Rs 41 to a dollar as part of its anti-inflationary measure and check the cost of oil imports.

However, leading exporters say the rising oil prices would increase demand for the dollar, making it difficult for the central bank to stabilise the rupee.

Source : DNA