Iron ore royalty rise may not hurt steelmakers' margins: Fitch

Tags: News
The increase in India's iron ore royalty rates is not likely to have a major impact on the profitability of steel producers in the country, rating agency Fitch Ratings said.

"We do not expect an increase in India's iron ore royalty rates to have a major impact on the profitability of steel producers in the country. Under the proposal approved by the Indian government, the royalty rate on iron ore will be increased to 15 per cent from 10 per cent," Fitch Ratings said in a statement.

The government has not yet said when the increase will be implemented.

The higher royalty rates will raise the input costs of Indian steel producers by USD 2-5 per tonne of steel produced, depending on the type and grade of iron ore used.

Fitch expects iron ore mining companies in India, which largely supply domestic users, to be able to pass on the increase given tight supply domestically, raising the input costs for both integrated and non-integrated steel producers.

It said steel producers are likely to be able to pass on their higher costs to consumers because of a likely improvement in steel demand in India. As a result, the higher royalty is unlikely to have a major impact on Indian steel producers' profit margins.

Fitch expects steel demand growth to start to improve from the second half of FY15, supported by a pick-up in consumption following rising consumer sentiments and an expected improvement in economic growth.

The improving consumer sentiment is reflected in passenger vehicle sales data compiled by the Society of Indian Automobile Manufacturers - sales volumes during June and July 2014 rose from a year earlier, compared with a six per cent fall in FY14.

Steel demand in India was weak during FY14 with consumption rising by just 0.6 per cent to 73.9 million tonnes, according to data from Joint Plant Committee, a government body that collects data on the iron and steel industry. This was due to slow growth in the key steel consuming industries of automobiles, infrastructure, construction and engineering.

Iron ore exporters, who already pay high export duties on their shipments, will face slimmer profit margins following the increase in royalty.

Iron ore exports other than pellets, already attract export duty of 30 per cent. India largely exports lower grade iron ore fines. The additional costs while global iron ore prices remain weak will significantly impact the competitiveness of iron ore exports from

the country.

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

EDITORIAL OF THE DAY

  • E-auction and eventual privatisation of coal industry are welcome steps

    The government’s decision to privatise the scam-ridden coal industry through a presidential ordinance will eventually end the monopoly of public sec

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

Chander Mohan Sethi

CMD, Reckitt Benckiser India

COLUMNIST

Tushar Gandhi

Sustainable model for rural sanitation

Prime minister Narendra Modi has promised to build a toilet ...

Rajgopal Nidamboor

Synchronous balance is vital for one and all

Imagine that you are playing an electronic game, or actually ...

Shona Adhikari

When women to birds become a painter’s muses

This week the focus is on renowned artist Amitabha Banerjee, ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture