Steel prices unlikely to cool-down despite source tax cut

June 10, 2021 Business
The cut in source tax in the proposed spending budget may well not bring down the cost of steel, meaning the price of infrastructure and construction projects is unlikely to decline, manufacturers say.

In the budget for another fiscal year, Finance Minister AHM Mustafa Kamal has proposed to reduce the tax deducted at source on the supply of iron and iron products from 3 % to 2 %.

Steel prices jumped 34 % within the last year due to millers were compelled to hike the rates found in the wake of spiralling scrap rates in the global industry, making the engineering of public assignments and home setting up costlier.

The retail price of 60-grade mild-steel rod rose to Tk 74,000 per tonne, up from Tk 54,000 just 14 a few months ago, info from the state-run Trading Corporation of Bangladesh showed.

The cost of steel scraps has increased by $260 per tonne in the international marketplaces recently, said Tapan Sengupta, deputy managing director of BSRM, the major steelmaker in Bangladesh.

Scrap is selling in $530 per tonne currently. It had been $270 per tonne in April 2020.

"The impact of the 1 % cut in the source tax in steel will never be felt at the buyer level. The cost of infrastructure and construction projects won't fall," said Sengupta.

The common production cost of steel products is Tk 72,000 per tonne.

The federal government can reduce steel price by cutting the import duty to Tk 500 per tonne from the existing Tk 1,500 and withdrawing the Tk 2,000 value-added tax, Sengupta said.

Another way is decreasing the advance tax to Tk 200 per tonne from the prevailing Tk 500 through the release of the recycleables from ports.

Md Shahidullah, secretary-standard of the Bangladesh Metal Producers Association and managing director of Metrocem Steel, said the federal government had thought that the trim in the taxes at source would lower the price of steel to some extent and reduce the cost of infrastructure and construction assignments.

The steel price has increased as melted steel is becoming costlier in the international industry in the last year, he said.

India, China, and the US use melted steel due to recycleables to manufacture steel items. Earlier, manufacturers would produce steel from iron ores.

Today Chinese steelmakers use scrap steel to make the finished products. India has withdrawn the duty on scrap import to save lots of the steel industry.

So, there is absolutely no possibility for the steel value to decrease, Shahidullah said.

The shipping cost has increased to $3,600 per container, way greater than $1,200 a year ago. A container can take 26 tonnes of scrap steel.

In Bangladesh, 90 % of the recycleables for steel products are imported from the US, Canada, Italy, the UK, and Australia.

Bangladesh imports 45 lakh tonnes of scrap steel annually. Another 10 lakh tonnes is collected locally.

There are about 40 active manufacturers with a combined ability to produce nine million tonnes of steel a year.

Mohammed Mohsin, vice chairman of PHP Family, feared the steel cost might rise further in the future as a result of scarcity of scrap steel globally.

He said scrap metal production had decreased in Japan and other countries. The auto industry is a major source of the main element raw material.

Now, millers are employing the raw materials which were imported earlier. But they must import costlier recycleables.

"So, the cost of metal will not drop immediately in the local market," Mohsin said.

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