New mining cess may increase cost pressure for steel makers: ICRA

The enforcement of the new mining cess by some states following the Supreme Court ruling may bring challenges for the domestic steel industry by adding to the cost pressures, according to rating agency Icra.

On August 14, the Supreme Court upheld the power of states to levy tax on mineral rights and mineral-bearing land, and allowed them to seek refund of royalty from April 1, 2005 onwards.

This development is poised to compress operating margins across the sector, impacting both primary and secondary steel producers, Icra said in a note.

While margins of the primary steel producers could shrink by 60-180 basis points, secondary producers may face a more severe impact, with margins declining by 80 -250 basis points, based on various scenarios that cess rates could vary between 5-15 per cent.

The power sector, which is heavily dependent on coal, may see a rise in the cost of supply by 0.6-1.5 per cent, potentially leading to higher retail tariffs. Further, primary aluminium producer