Hampered by rising raw material costs, delays in project execution and subdued demand, the maiden Union Budget of the Narendra Modi government gives out hope for better times to come for the country's metal and mining companies.
The hope doesn't necessarily come from budget measures announced specifically for the sectors, but from the positive ring around steps taken to prop up investment in the country. "The government investments and measures will trigger investment cycle. He (Finance Minister Arun Jaitley) has facilitated ease of doing business and has given clarity on tax regime," Koushik Chatterjee, Group CFO, Tata Steel told CNBC-TV18.
Demand for steel grew by a mere 0.6 percent in 2013-14, the lowest in four years. The demand had gone up by over 3 percent a year earlier.
"There are lot of measures in the budget, ranging from setting of new 'smart cities' to re-development of airports that will spur demand for metal companies. And measures like new ports and tax rationalization of different grades of coals will improve logistics and ease business atmosphere," said SV Sukumar, head of operations and supply chain, KPMG.
Though the Union Budget was largely silent on major measures, steel companies will see some relief by reduction of basic custom duty on steel grade limestone and dolomite to 2.5 percent from 5 percent. The two are used in steelmaking.
Tata Steel and its peers like JSW Steel and Jindal Stainless will also benefit from the increase in basic custom duty of imported flat-rolled products of stainless steel from 5 percent to 7.5 percent. "The domestic stainless steel industry is presently suffering from severe under-utilization of capacity," the Finance Minister reasoned. "We welcome the step," said NC Mathur, president, Stainless Steel Development Association.
But the biggest concern for these companies has been access to the all important raw materials - iron ore and coal. JSW Steel, owned by Sajjan Jindal, recently announced that it will be importing 6 million tons of iron ore, an irony given India's ample resources of the raw material.
Jaitely acknowledged this concern. "It is my government's intention to encourage investment in mining sector and promote sustainable mining practices to adequately meet the requirements of industry without sacrificing environmental concerns. The current impasse in mining sector, including, iron ore mining, will be resolved expeditiously. Changes, if necessary, in the MMDR Act, 1957 would be introduced to facilitate this," he said.
"We have been making presentations to the minister. We will have to wait and see what changes are brought in," said RK Sharma, secretary general, Federation of Indian Mineral Industries, or FIMI.
Sharma though criticized the government's move to increase export duty on bauxite from 10 percent to 20 percent. "At present, most of the bauxite that is exported from India comes from Gujarat and Maharashtra. These are not required in India as these are refractory grade bauxite and are not used by the aluminium makers in the country," he said. Now, he added, these bauxite reserves will "lie around unused."
In a move that was expected but one that might increase costs of metal companies and their customers, the Finance Minister has given a go-ahead for the revision of royalty on minerals. Mining companies have to pay royalty to state governments. In iron ore itself, the rate is expected to be increased to 15 percent from 10 percent of the output.
The S&P BSE Metal Index on Sensex was up 1.65 percent, outperforming the Sensex that was down 0.28 percent at 3.40 pm.
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Updated Date: Jan 20, 2015 18:19:22 IST