The steel industry is bracing for a significant hit to its bottomline following a Supreme Court ruling that has paved the way for states to impose a new mining cess, which is expected to significantly increase production costs, potentially leading to margin declines of up to 10 per cent, according to some estimates.

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 per cent and 15 per cent, rating agency Icra estimated.

The power sector, which is heavily dependent on coal, may see a rise in the supply cost by 0.6-1.5 per cent, potentially leading to higher retail tariffs. Further, it added that primary aluminium producers will also be impacted due to their high power consumption.

Girishkumar Kadam, senior vice-president at Icra, said the “enforcement of the new mining cess by key mineral-rich states could heighten cost pressures for the steel industry.” He noted that while the exact rates have yet to be determined, a substantial cess could significantly impact margins, particularly for secondary steel producers.

Odisha, a major mineral-rich state, is poised to play a pivotal role in determining the impact of the cess.

The state’s Orissa Rural Infrastructure and Socio-Economic Development Act (ORISED) allows for a 15 per cent cess on iron ore and coal. If fully implemented, this could lead to an 11 per cent increase in the landed cost of iron ore, making domestic steel less competitive.