Steel Stocks Slump On Export Duty Jolt

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Shares of major steel companies slumped on Monday following the government’s decision to impose export duty on 11 iron and steel intermediates and cut import duty on three key raw materials for steel production.

Tata Steel Ltd, JSW steel Ltd, SAIL, Jindal Steel and Power Ltd fell over 10%, with hitting 52-week lows in opening deals on Monday.

The government on Saturday waived customs duty on the import of some raw materials, including coking coal and ferronickel, used by the steel industry, a move which will lower the cost for the domestic industry and reduce prices.

Also, to increase domestic availability, the duty on exports of iron ore was hiked up to 50%, and a few steel intermediaries to 15%, according to a notification.

This move is likely to divert more steel toward the domestic market and control the sharp upward spiral in steel prices, said analysts

Analysts at Kotak Institutional Equities Ltd said, “The government’s decision to impose a 15% export duty on steel should lead to a significant correction in domestic steel prices (8-10%) given India’s dependence on exports”. This would impact the profitability and earnings of the Indian Steel manufacturers.

This comes at a time when input cost of steel companies have risen sharply with rising coal and iron-ore prices, and could impact profitability and in some cases capital expenditure plans as well.

Analysts at Motilal Oswal Financial Services Ltd said, “We believe the measure would have produced the desired result if implemented a year ago when the steel prices were at a similar level but coal was about 20% lower and profitability was at a near peak. The industry would have the capacity to absorb the impact without sacrificing its capex plans, which is not possible now.”

Domestic steel prices have risen sharply in the last two years and the Russia-Ukraine crisis meant hit unsustainable levels of 75,000-80,000 per tonne in early April.

As a result, there was some correction in prices. Hot-rolled coil prices were on a par with landed cost of imports at 69,000/tonne, or around $890, said Kamlesh Bagmar Deputy – Head of Research – Institutional Equities Prabhudas Lilladher. Export realisations for steel manufacturers stood at close to $900 a tonne. The 15% export duty, would translate to an additional cost of $135/tonne on volumes, said Bagmar.

The global steel market was spooked following the Russia-Ukraine war, depressed market conditions in China and high inflation. Imposition of export duty by India could destabilise already weak demand in anticipation of lower supplies from Indian mills, added Bagmar.

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