Duty rollback may boost mood for steel cos, not much else, Auto News, ET Auto

Duty rollback may boost mood for steel cos, not much else

The government’s decision to roll back export duties on ferrous and steel products is unlikely to provide any significant boost to the country’s listed steelmakers because global demand for steel has collapsed, limiting export opportunities, industry experts have said.

There is also a concern in the industry that any major uptick in steel price could make the government reconsider export duties, they said.

However, the duty rollback could lead to some sentimental boost and have marginally revised price targets upwards by around 10%-15% across steel companies such as JSW Steel, Jindal Steel and Power, analysts said.

Further, low inventory in the system may provide near-term support.

Duty rollback may boost mood for steel cos, not much else
Price targets for Tata Steel and SAIL shares have not seen any meaningful revisions after the export duty rollback.

The duties were introduced in May this year when steel prices in India as well as globally reached a record high, allowing lucrative export opportunities. But the situation has changed drastically since then.

World Steel Association (WSA) has sharply cut its 2022 and 2023 demand estimates across all regions including India. The only exceptions are the Middle East and Africa.

The new global steel demand growth estimates have been revised downwards to -2.2% for 2022. The sharpest drop in demand is expected in Europe and the UK, where Tata Steel has a large exposure through its European operations.

To give a perspective, in May, Indian steel prices (hot rolled coil) were above ₹70,000 per tonne and European steel prices were around $1,000 (nearly ₹77,000) per tonne. Premiums in the overseas markets allowed export opportunities and higher volumes for domestic steel producers.

In contrast, at present, Indian prices are at ₹55,000 per tonne, down 20-22%, while European steel prices have crashed by more than 40% to $600, or about ₹49,000, per tonne.

Further, according to industry trackers, Chinese prices are down 30% in the period. Thus, exporting steel could be less beneficial for domestic producers.

On Friday, share prices of all four major steel producers – Tata Steel, JSW Steel, Jindal Steel and Power, and SAIL – remained flat over their previous day’s close.