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ICICI Securities Report
Directorate General of Trade Remedies has initiated the investigation of safeguard provisions pertaining to imports of non-alloy and alloy steel flat products into India. DGTR has noted that sufficient evidence exists that sudden influx of imports has adversely impacted the domestic industry.
In our view, the initiation of investigation would lead to channel restocking and a further reduction in imports booking. This would aid flat steel prices and spreads, already at four-year and three-year low level, respectively. Furthermore, if safeguard duty is imposed for four years (as requested by applicant companies), it would come as a structural relief to domestic steel players, benefitting especially JSW Steel (Buy; target price: Rs 1,085) and Tata Steel (Buy; target price: Rs 190).
We believe the investigation of safeguard provisions pertaining to alloy and non-alloy imports is the first step towards protecting the domestic market players against unfairly priced imports. In our view, the uptick in HRC prices is unlikely to be as much as safeguard duty being on imports as the primary endeavour of steel companies would be to maintain their market share.
That said, we believe the decline in HRC price would abate and uptick is on cards in near term, raising both spreads and profitability. Furthermore, we believe the duration of safeguard duties of four years as requested by the appellants is likely to ensure that upcoming capacities are fully absorbed, leading to structural improvement in operating environment, benefitting especially JSW Steel (Buy; target price: Rs 1,085) and Tata Steel (Buy; target price: Rs 190).
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