Safeguard Duties For Indian Steel To Boost Prices, Up Firms' Margins, Says Nomura

There is an increased risk that some kind of duty may be levied to support the domestic steel industry, Morgan Stanley said. (Source: Unsplash)

Any safeguard measure for the Indian steel industry will boost prices and increase the margins of steel makers, Nomura Research said, amid reports of domestic industry pushing for a 25% duty on imports.

Nomura is expecting a safeguard duty in the range of 10-15% on steel imports, as per a report issued by the brokerage on Thursday. Assuming a 12% duty, the landed prices will be Rs 4,000 per tonne higher than the domestic spot prices, it said. "We believe the industry would be able to take a Rs 2,000 to 2,500 per tonne price hike in that scenario."

Nomura analysts believe safeguard duty would be a better option than anti-dumping duty, as it would be easier to impose and it targets all imports including those countries with free trade agreements. "The imports from FTA accounted for 51% in 2024, while those from China accounted for 30%," they said.

Nomura maintained its "positive" stance on the Indian steel industry and retained the "buy" rating for JSW Steel Ltd. and Jindal Steel And Power Ltd., with a target price of Rs 1,220 and Rs 1,080 per share, respectively.

Further, any increase in steel prices might provide an opportunity for domestic iron ore producers to raise prices, the report said. "We believe the price hike window is smaller for domestic producers, as with supplies resuming from Australia, global iron ore prices will soon start easing."

Hence, Nomura expects aggressive iron ore price hikes following the announcement of the safeguard duty. It added that a Rs 600 per tonne price hike in iron ore would result in a Rs 1,000 per tonne increase in the consumption cost for converters such as JSW Steel and Jindal Steel. "Integrated players such as Tata Steel Ltd. and Steel Authority of India Ltd. would be better placed in such as scenario."

Meanwhile, Indian steel stocks have surged on optimistic policy signals from China, Germany, and India. However, the sustainability of this rally hinges on some specifics, according to JPMorgan.