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The Federation of Indian Chambers of Commerce and Industry (FICCI) has written a letter to the Union Ministry of Finance seeking the withdrawal of 15 per cent export duty on pig iron.

FICCI has claimed that the decision to impose the export duty, will have no positive impact on the Indian steel industry, but it will adversely affect pig iron producers making it unviable for them to export surplus pig Iron.

Merchant pig iron producers are forced to export surplus pig Iron due to vagaries in domestic demand and to sustain the operations.

According to FICCI, export duty on pig iron will not lead to any benefits to the domestic steel industry as almost all major steel manufacturers have captive pig iron production. However, it will affect the merchant pig iron producers adversely to sell the surplus quantity in view of limited demand from Domestic Steel industry.

Pig iron is an intermediate product produced during the production of steel, which is obtained by smelting iron ore in a blast furnace.

In FY22, India produced about 5.76 MT of merchant pig iron against the installed capacity of 7 MT.

In its letter, FICCI claimed that the domestic consumption for merchant pig iron has come down drastically from 9.90 MT in FY17 to 4.94 MT in FY22. A major reason for this drastic reduction is due to steel scrap substitution in pig iron market, which was made duty free in the 2021 Union Budget. As a result, domestic pig iron producers were forced to export, in order to utilize the production capacities at breakeven operations level.

FICCI said that "the cost of coal constitutes nearly 50 per cent of pig iron production cost. Therefore, domestic pig iron manufacturers are already struggling due to the rise in price of coking coal. Despite an increase in the cost of raw material, the industry is not able to increase prices due to weak domestic demand".

"At present, the domestic industry is working with thin and sometimes negative margins," the industry body wrote in its letter.

It claimed that the imposition of export duty will force the domestic pig iron industry to cut down production because of weak domestic demand and higher cost of exports.

The duty will also create the situation where MSMEs and other standalone pig iron producers will not be able to access international markets.

Further owing to lower capacity utilization, standalone pig iron producers will have to bear high fixed costs and incur losses and eventually shut their operations.

According to FICCI, the export duty will also result in India losing its hold in several established markets like the US, Japan, Middle East, and Southeast Asia.

FICCI has asked the ministry to closely review these factors and withdraw export duty on pig iron at the earliest.