Today on the stock market, three steel stocks hit the lower circuit within minutes of the opening bell. Tata Steel, Steel Authority of India (SAIL), and JSW Steel are the three companies. On Dalal Street, the central government’s announcement to adjust custom tax on raw materials for iron and steel goods by decreasing import duty on some steel items while levying export duty on others has probably not gone down well.
On the BSE, Tata Steel’s share price opened with a near-73 per-share downward gap and went on to reach lower circuit at 1053.20 per share. SAIL’s stock price plummeted in early morning trading, hitting a low of 74.70 on the BSE. Similarly, JSW Steel’s stock opened under heavy selling pressure and fell to a low of $567.80 a share.
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“In a move to reduce inflation, the Ministry of Finance announced export taxes on most steel products, combined with an excise duty drop for fuel and diesel,” CLSA research adds. More supply is likely to be diverted to the domestic market as a result of this. With pricing now being influenced by the export parity philosophy (rather than import parity), steel prices in India could fall sharply. Lower prices for coking coal and iron ore, as well as a tighter global balance, are unlikely to compensate.
As a result, we’ve lowered our forecasts for all three stocks in our steel coverage: Tata Steel from BUY to Underperform, JSW from Underperform to SELL, and JSPL from BUY to Outperform.” The decision, according to the CLSA analysis, bodes favourably for cement and consumer durables.
According to an ICICI Security report, the reason for today’s steep drop in steel stocks is because “To maintain higher domestic supply and limit growing prices, the Indian government has levied export taxes on steel, steelmaking raw materials, and middlemen. The majority of steel/stainless steel exports will now be subject to a 15% export tariff (from nil earlier).
We consider this as a very unfavourable development for the steel industry, and we foresee widespread multiple downgrades. Under our coverage, we downgrade steel/stainless equities to HOLD/REDUCE/SELL. Tata Steel, JSPL, JSW Steel, and SAIL are all downgraded to REDUCE.”
“The government has announced that it will adjust customs duties on raw materials for iron and steel goods by lowering import duties on some steel products while increasing export duties on others. India has been running a trade surplus in the area of “iron and steel” for the past two years. The trade surplus in FY22/FY21 was USD10.3 billion/USD3.8 billion.
India’s reliance on ‘iron and steel’ imports has decreased over time, accounting for only 2.1 percent of overall imports in FY22, down from 2.8-3.6 percent in FY06-16. India’s ‘iron and steel’ exports accounted for 5.5 percent of total exports in FY22, the highest level in at least a decade “In a report, domestic brokerage Motilal Oswal said this.
Swastika Investmart Ltd’s Head of Research, Santosh Meena, stated, “In order to reduce inflationary pressures, the government has chosen to increase export duties on iron ore and steel while lowering import duties on coal, a vital raw material for steelmakers.” Steel prices will be lower as a result, which will benefit industries such as infrastructure and real estate.
Steelmakers, on the other hand, are dissatisfied with the move because their existing expansion plans were based on the premise of global and domestic market growth. The 15% export levy on flat steel will make Indian steel pricing less competitive in the global market, and most steel companies are unsure whether the domestic market will absorb the additional production. All of these reasons will drive steelmakers to reconsider their strategies for the future.”