The Indian steel market is undergoing a positive shift, driven by new government policies in both India and China that are helping to stabilize the supply of steel. While demand in India is still slow, the industry is optimistic about a recovery after the monsoon season, supported by more government spending in the current fiscal and the upcoming tax reforms.
India's New Shield: Safeguard Duty
India is in process of extending its safeguard duty, on imported steel for three years. This tax makes foreign steel more expensive, discouraging imports. Right now, domestic steel is actually at a 9% discount to import prices.
The goal of this policy is to reduce the reliance on foreign steel. This protection makes the industry less vulnerable to the unpredictable and often low prices from China, leading to better sales and profits for local manufacturers.
China's "Anti-Involution" Campaign
In China, the government is trying to fix its problem of too much production, or overcapacity, with a new policy called "anti-involution." This policy uses regulatory tools like environmental measures and production caps to close down inefficient steel plants.
Such curbs in the world's top steelmaker may lead to better profits for Indian companies, besides filling government coffers. The effects of this policy are already being felt, and real production cuts are expected soon, which will help balance the global steel market, as per analysts at Emkay Global.
What This Means for the Future
These policies are creating a more stable environment for steel prices by controlling the supply side. The safeguard duty sets a price floor, protecting against major price drops, while import prices will likely keep a lid on any big price increases.
A predictable price range makes it easier for domestic companies to plan operations and execute expansion. Emkay said it prefers industry majors Steel Authority of India Ltd. and Tata Steel Ltd.
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