Waiving Of Carbon Tax On Coal To Benefit Steel, Aluminium Industry
Freight wagons filled with coal line the railways tracks. (Photographer: Andrey Rudakov/Bloomberg)  

Waiving Of Carbon Tax On Coal To Benefit Steel, Aluminium Industry

The government’s proposal to waive a clean energy cess levied on coal is expected to bring down production costs for aluminium and steel producers who use it as a fuel mix.

The proposal, which aims to improve the financial health of power utilities and distribution companies, was put forth by the Prime Minister’s Office, according to a SteelMint report. Currently, a cess of Rs 400 per tonne is levied on imports and production of coal.

Aluminium, Steel Companies To Gain

The move, according to a Phillip Capital report, will benefit the aluminium and steel industry as it would bring down the production cost of aluminium and steel by Rs 4,000-5,000 and Rs 400-500 per tonne, respectively.

Coal is used by captive power plants in the smelting process for producing aluminium. National Aluminium Co. Ltd., Hindalco Industries Ltd. and Vedanta Ltd. are likely to benefit from the tax waiver, Phillip Capital said.

Steelmakers, however, stands to benefit a little less than aluminium producers as they largely depend on imported coking coal rather than domestically produced thermal coal.

The move could reduce the total cost at hot metal level for steelmakers and lead to some cost savings, Amit Dixit, assistant vice president (research) at Edelweiss Securities, said.

Impact On Cement Makers

A waiver of levies on coal will also aid some cement manufacturers.

Gautam Bafna, founder and chief executive officer at Wisdom Torch Consulting Solutions and former associate director of Care Ratings Ltd., said the move is expected to benefit ACC Ltd. and Ambuja Cements Ltd. the most as their usage of coal in overall fuel mix stands at 40-45 percent compared to 20-35 percent for their peers.

Rakesh Arora of Go India Advisors, however, said the development won’t have a major impact on cement producers since they have shifted to pet coke as an alternative energy source for manufacturing cement. Nevertheless, depending upon the fuel mix, savings will fluctuate for cement companies, he said.

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