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Steel sector: Improved domestic balance; imports a risk

Removal of export duties on Steel (from 15%) should open up export opportunities and aid better domestic balance, write analysts at IIFL Securities in their latest research report.

November 21, 2022 10:30 IST | India Infoline News Service
~Rs8,000/t premium versus import parity prices and falling coking coal prices, remain a key risk to steel prices in the near term. Analysts at IIFL Securities reiterate our neutral stance on the sector (after recent upgrades to Add for Tata Steel, JSPL and SAIL), and upgrade JSTL to Reduce (amid rich valuations). They also upgrade NMDC to Buy, supported by expectation of iron ore price hike after the recent Rs300/t reduction.

Removal of 15% export duty on steel to aid balance

After six months of imposing 15% export duty on steel, the government of India on 19-November-22 has reversed the decision with NIL export duty now applicable on steel exports. Duty imposition, combined with fall in global steel prices, had driven down Indian steel exports from over 1mt/month run rate over January-April, to average of 0.44mt/month over July-October and only 0.36mt in October 2022. Removal of export duty opens up export markets once again; analysts at IIFL Securities except some volume diversion to aid domestic demand supply amid production uptick over the second half of FY23.

But premium to import parity prices a key risk

Domestic steel prices currently are at ~Rs8,000/t premium to import parity prices from FTA countries; imports have started to rise as supply chain issues have eased gradually. Combined with softer coking coal prices globally, analysts at IIFL Securities see this as a key risk to domestic steel prices. Opening up of exports and second half being traditionally strong in terms of demand — would need to offset the pressure from imports, in order to sustain profitability for domestic steel players.

Iron ore and Pellet prices to benefit

Iron ore and pellet prices had weakened sharply, post imposition of the 50% export duty. Removal should support demand and domestic prices, albeit moderated by weak outlook globally. IIFL Securities upgraded NMDC to Buy.

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