A 15% Export Duty Is Negative For Steel Sector, Analysts Say

An export duty imposed on steel products is “negative” for the sector as it would not only impact prices but also margin and realisations, according to analysts.

India has levied a 15% export duty on some steel products, while reduced import duty on some raw materials of steel to nil, in fight against inflation. The export duty on iron ore has been increased to as high as 50% in some cases. That is along with a cut in excise duty on petrol and diesel.

According to JPMorgan, the government seems to have singled out the ferrous value chain in the inflation fight with large export taxes as other industries—cement, base metals, refining, petrochem—remains broadly untouched.

Here's what analysts have to say about the impact of export duty levy on the steel sector...

JPMorgan

• It is a sentiment negative for the ferrous sector (Tata Steel Ltd., JSW Steel Ltd., Steel Authority of India Ltd., NMDC Ltd.).

• Expects stocks to react negatively across the board.

• Does not see any consensus earnings impact.

• Consensus earnings were implying a 50% fall from spot levels.

• Companies should broadly be still able to maintain Q4 profitability.

• Interesting to see if companies recalibrate capital expenditure programmes in view of effective cap on profitability.

• Given de-stocking, estimate domestic hot-rolled coil prices prior to the duty increases had declined by Rs 4,000-5,000 a tonne, and post the export duty imposition, we see another Rs 4,000-5,000 a tonne cut in domestic HRC prices to take prices to Rs 67,000 a tonne.

Jefferies

• Remains cautious on Indian steel amid a weakening global outlook.

• The 15% export duty on steel will not only hurt export realizations but also weigh on domestic prices in an oversupplied market.

• Export duty hike on iron ore and a slight cut to coking coal import duty should provide some cost relief.

• Cost relief more for non-integrated mills' but steel price fall is likely to be bigger.

• Export duty posing margin pressure.

• Maintains an ‘underperform' rating on JSW Steel and ‘hold' on Tata Steel.

Edelweiss Securities

• Acutely negative for the steel sector, already grappling with the lowest spreads in past 21 months.

• Will not only bring down the domestic realization but also export realization.

• The benefits from no import duty on coking coal/coke lower compared to the dent due to duties.

• Lower pellet prices in domestic market will also pull down iron ore prices.