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Iron & steel industry: Royalty hike may compound woes

The Indian iron & steel industry, which is struggling to cope up with lower demand and falling steel prices could be further.

, ET Bureau|
Jun 27, 2013, 04.29 AM IST
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The Indian iron & steel industry, which is struggling to cope up with lower demand and falling steel prices could be further
The Indian iron & steel industry, which is struggling to cope up with lower demand and falling steel prices could be further
The Indian iron & steel industry, which is struggling to cope up with lower demand and falling steel prices could be further impacted by a possible increase in iron ore mining royalty by 5%.

This will be a negative for the entire ferrous metal and mining chain and further lower the earnings by 3-5%.

A committee of the government has recommended an increase in royalty to 15% from 10% now. This proposal will need the approval of the mines ministry as well as the Cabinet. Industry officials reckon that it is just a matter of time before the rate is increased.

Once approved, it will be a huge negative for the entire iron & steel industry.

Given the weak demand for steel, mining companies such as NMDC and Sesa Goa will not be able to pass on the entire increase in iron ore mining royalty to steel manufacturers, which will lower the profitability of these companies.

This increased cost will partially take away the gain that these companies may realise from the fall in the rupee. The realisations of mining companies are linked to global iron ore prices, which are given in dollar terms while their costs are rupee-linked.

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