FICCI fears export duty on pig iron might drag down production

New Delhi, Sept 3 (KNN) The decision to impose an export duty on pig iron will have no positive impact on the Indian steel industry, but it will adversely affect pig iron producers making it unviable for them to export surplus pig Iron, said FICCI on Friday.

It claimed that the imposition of export duty will force the domestic pig iron industry to cut down production because of weak domestic demand and higher costs of exports.

The Federation of Indian Chambers of Commerce and Industry (FICCI) has written a letter to the Union Ministry of Finance seeking the withdrawal of a 15 per cent export duty on pig iron.

Merchant pig iron producers are forced to export surplus pig Iron due to vagaries in domestic demand and to sustain the operations.

“The export duty on pig iron will not lead to any benefits to the domestic steel industry as almost all major steel manufacturers have captive pig iron production. However, it will affect the merchant pig iron producers adversely to sell the surplus quantity in view of limited demand from domestic steel industry,” FICCI stated.

This fiscal, India produced about 5.76 MT of merchant pig iron against the installed capacity of 7 MT.

FICCI in a letter said that the domestic consumption of merchant pig iron has come down drastically from 9.90 MT in FY17 to 4.94 MT in FY22. 

A significant reason for this drastic reduction is due to the steel scrap substitution in the pig iron market, which was made duty-free in the 2021 Union Budget. As a result, domestic pig iron producers were forced to export, in order to utilize the production capacities at the breakeven operations level.

The cost of coal constitutes nearly 50 per cent of pig iron production cost. Therefore, domestic pig iron manufacturers are already struggling due to the rise in the price of coking coal. 

Despite an increase in the cost of raw material, the industry is not able to increase prices due to weak domestic demand".

"At present, the domestic industry is working with thin and sometimes negative margins," the industry body wrote in its letter.

The duty will also create a situation where MSMEs and other standalone pig iron producers will not be able to access international markets.

Further owing to lower capacity utilization, standalone pig iron producers will have to bear high fixed costs and incur losses and eventually shut their operations.

According to FICCI, the export duty will also result in India losing its hold in several established markets like the US, Japan, the Middle East, and Southeast Asia.  (KNN Bureau)