CovEr STory - Mjunction

fEATURE
Union Budget a mixed bag for metals,
mining sectors
Coal Insights Bureau
The Union Budget 2012-13 was a mixed bag for the
metals and mining sector. While the increase in
excise duty would be marginally negative for metal
producers, exemption from import duty on coal would be
slightly positive for thermal coal importers, including nonferrous
metal producers, JSW Steel and some sponge iron
producers.
Moreover, the increase in customs duty on non-alloy flatrolled
steel from 5.0 percent to 7.5 percent would be slightly
positive for flat steel producers.
Expectations
• Increase in import duty on steel from the current level of
5 percent.
• Removal of import duty/CVD on thermal coal from
current levels of 5 percent/5 percent.
• Hike of excise duty to 12 percent, from 10 percent.
Announced measures
• Excise duty has been raised to 12 percent, as expected.
• Import duty on flat steel products has been increased to 7.5
percent, from 5 percent.
• For the infrastructure (mainly power) sector, import duty
on thermal coal has been removed, while CVD has been
reduced to 1 percent, from 5 percent.
Impact: A mixed bag
• Higher import duty on flats positive for steel companies.
The increase in import duty on flat steel to 7.5 percent
(from 5 percent) is positive for domestic steel companies.
• Flat steel producers should benefit from this development
while margins for long steel producers would not decline.
JSW Steel should benefit the most as flat products
contribute 75-80 percent to its volumes, followed by SAIL
(flat steel represents 55-60 percent volumes) and Tata
Steel (flat steel accounts for 55-60 percent of domestic
volumes).
• Hike in excise duty is negative for non-ferrous companies.
The hike of excise duty to 12 percent (from 10 percent)
is negative for non-ferrous companies, as their net
realisations will now decrease accordingly. Hindalco and
Sterlite should be most impacted from this move, followed
by Nalco and Hindustan Zinc.
• Removal of import duty/cut in CVD on thermal coal
is negative for Coal India. Removal of import duty
(currently 5 percent) on thermal coal and the cut in CVD
to 1 percent (from 5 percent) are negatives for Coal India
as its e-auction realisations will decline with the decline in
landed cost of imported coal. E-auction contributes about
10 percent to Coal India’s volumes and 40-45 percent to
EBITDA.
• No substantial impact on pure-play miners. Pure-play
miners such as Sesa Goa, NMDC and MOIL should see
little impact from the changes proposed in the Union
Budget.
Metals
Announcement
Increase in excise duty from the current level of 10% to 12%.
Full exemption from import duty on thermal coal (5% currently) up to FY2014 and
decrease in countervailing duty from 5% to 1%.
Decrease in basic customs duty on machinery from 7.5% currently to 2.5% for
setting up iron ore beneficiation and pellet plants.
Increase in customs duty on non-alloy flat-rolled steel from 5.0% to 7.5%.
Decrease in import duty on machinery used for prospecting in mining from
10.0/7.5% to 2.5%; Abolition of customs duty for coal mining projects.
Impact
This would be slightly negative for steel, sponge, non-ferrous metal producers.
This would be positive for coal importers, such as Nalco, Hindalco, Sterlite
Industries and JSW Steel.
This would be slightly positive for steel makers setting up pellet and beneficiation
plants.
This would be slightly positive for flat steel producers, such as Bhushan Steel,
SAIL, JSW Steel and Tata Steel.
Positive for mining companies and steel companies undertaking mining projects.
COAL INSIGHTS 40 March 2012