The steel industry, buoyed by the revival in product price realisation for more than a year now, is now looking forward to the budget to cut input costs. But the industry could face a setback in the form of a customs duty reduction.

The metals industry has traditionally been an indirect beneficiary of the attempts by successive budgets to provide a solid thrust to infrastructure and housing projects and this year may well confirm to earlier trends.

Any kind of infrastructure boosts in areas such as housing, roads, ports and power should translate into better growth prospects for steel companies in the next year.

In fact, any move towards lowering corporate tax rate would benefit the companies in general.

According to analysts, if the reduction in excise duty on galavanised steel from present 16 per cent comes through the budget it should improve the demand of the product and also Jisco, the leading manufacturer of galvanised steel.

Analysts are of the view that reduction in import duty on non-coking coal will lower cost of production, particularly steel players.

It is also expected that easing of norms for setting up captive power plants will help the steel companies as power is a key cost component.

If the import duty on petro products  is decreased it will help players such as Tata Steel, who have diesel-based captive power plants.

However, any move towards reducing the customs duty on steel products could have a total negative impact on primary steel producers such as Tata Steel, it may prove beneficiary for secondary players as Jisco.

The wide spread expectation is that the government may reduce customs duty on HR coils by 5 per cent from 25 per cent, while a similar reduction in CR coils may be implemented to the current 30 per cent.

India produces around 32 million tonne a year, of which 9 per cent is exported. Worrying factors for manufacturers is the possibility of India becoming a dumping ground for other exporting countries once the US market raises the ramp.

Significantly, at a time when most countries are putting up barriers to steel imports, India allows imports of steel products freely under the open general licence schemes at duties ranging from 25 to 35 per cent.

World Steel Dynamics, an established steel magazine, in early 2002 studied the costs of producing steel in various companies all over the world.

The cost of producing one tonne of steel in Tata Steel at $179 was much lower than National Steel in US ($266 ), Sollac in France ($237) and Nippon in Japan ($268).

The magazine also ranked steel companies according to their efficiency with the 72nd rank being given to a median plant (based on parameters of the most efficient plant and the least efficient plant and dividing it by two).

Run-up to the Budget 2003