Incremental Steel Import Duty 'Positive' For Industry As It Drives Margin, Says Morgan Stanley

The incremental import duty on steel should be positive for the Indian steel industry, according to Morgan Stanley, as it supports margins and aids in capital expenditure.

There has been increased discussion on anti-dumping cases against all steel imports and not just limited to Chinese steel, analysts at Morgan Stanley said in a note.

The government has already initiated anti-dumping investigations for steel imports from China and Vietnam and is looking to enforce 'safeguard duty' against steel imports, Jefferies said quoting news reports. There is an increased risk that some kind of duty may be levied to support the domestic steel industry, it said.

However, Jefferies believes that any incremental import duty should be positive for the Indian steel industry, citing that it could take domestic steel prices up, driving margins and capex. Although the entire industry should benefit, companies with a greater share of flats in their product mix could be advantaged, it said.

A 15% safeguard duty may drive domestic hot rolled coil prices up by 10% and may take up fiscal Ebitda by 15-40%, the brokerage said.

JSW Steel Ltd. is to benefit the most given high share of flat products and volumes support, while Steel Authority of India Ltd. is expected to see the highest earnings delta given its low starting point, Morgan Stanley said.

Further, large steel companies have been aggressively adding steelmaking capacity to cater to increasing demand, Morgan Stanley said. With elevated imports, the availability of steel in the domestic market remained elevated, thereby limiting inventory digestion.

Imports have decreased steadily since fiscal 2016, and their share in overall consumption has moderated even more sharply, it said. "This changed over the past couple of years, when imports started to rise again and India became a net importing country."

Indian steel firms recently received a shock from US President Donald Trump's tariffs. Trump said he plans to impose 25% tariffs on all imports of steel and aluminum, which triggered a sharp decline in the shares prices on Indian steel firms.