New mining levy could increase cost pressure for steelmakers: ICRA | News
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This development will depress operating margins across the steel sector. Bloomberg Photo
The enforcement of the new mining levy by some states following the Supreme Court ruling could lead to further problems for the domestic steel industry as it increases cost pressure, according to rating agency ICRA.
On August 14, the Supreme Court upheld the states’ authority to levy taxes on mineral rights and mineral-bearing lands and allowed them to seek refunds of royalties beginning April 1, 2005.
This development is expected to lead to a decline in operating margins across the sector and affect both primary and secondary steel producers, ICRA said in a statement.
While primary steel producers’ margins could shrink by 60-180 basis points, secondary producers could be hit even harder, with margin declines of 80-250 basis points, with levy rates varying between 5-15 percent based on different scenarios.
In the energy sector, which is heavily dependent on coal, supply costs could rise by 0.6 to 1.5 percent, potentially leading to higher retail tariffs. In addition, primary aluminum producers would also be affected due to their high electricity consumption.
“The imposition of the new mining cess by key mineral-rich states may increase cost pressures for the steel industry. Although most states are yet to finalise the rates, any significant cess could negatively impact margins, particularly for secondary steel producers, as mining companies are expected to pass on the increased costs,” said Girishkumar Kadam, Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA.
According to ICRA, the recent Supreme Court verdict has brought renewed focus on the Orissa Rural Infrastructure and Socio-Economic Development Act, 2004 (ORISED), which provides for a 15 percent cess on iron ore and coal. If fully enforced, it could lead to an 11 percent increase in the cost of iron ore, which would directly impact the cost competitiveness of domestic steel companies.
In a similar move, the Jharkhand government recently imposed a hike of Rs 100 per tonne in iron ore and coal prices, setting a precedent that other states may follow. This hike is expected to have minimal impact on the operating margins of steel companies, reducing them by 30-40 basis points.
(Only the headline and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
First published: 26 August 2024 | 2:35 p.m. IS
