Even though, removal of export duty comes as a big relief and long-term positive for domestic iron and steel producers, global situation is now worse off than what it was in May, believes brokerage houses.
“Due to the falling steel demand and low prices, globally, the benefits are likely to be marginal,” said brokerage ICICI Securities Ltd.
Analysts of IDBI Capital Markets & Securities Ltd’s said that as the global economy remains weak, the near-term outlook for steel businesses is gloomy. The steel industry's main issue continues to be export duties.
“Hot-rolled coils exports are still not viable for domestic steel producers and thus exports should remain low. However, now we see limited room for downside in domestic prices.,” said brokerage house, Nuvama Wealth Management Ltd, formerly known as Edelweiss Securities Ltd.
The World Steel Association's most recent projections indicate that in 2022, global steel consumption will decrease 2.2% year on year. Although the consumption is anticipated to increase once more in 2023, it is most likely to stay much lower in that year.
ICICI Direct Research said that the removal of export duty augurs well for domestic steel players, albeit over a longer-term horizon.
However, from May 2022, global steel demand has become muted, which has caused steel prices to decline. Since steel prices are now subdued on the international markets, export quantities are projected to increase significantly when prices rise internationally.
“The recent step of removal of export duty on steel products does provide an opportunity for domestic players to enhance their export volume notably as and when international steel prices strengthens,” the brokerage added.
Roll-back of export duty- A great relief for steel majors
The status quo that existed before May 22, has been restored by the government to support the domestic steel industry and increase exports.
Export duties on some steel and pig iron products, as well as iron ore pellets, are ‘nil’ as of November 19. Additionally, export taxes on lumps and fines of iron ore containing less than 58% iron will be ‘zero’.
The rate of duty will be 30% for lumps and fines of iron ore containing more than 58% iron.
According to the announcement, import duties on anthracite/PCI, coking coal, and ferronickel have increased to 2.5% from 'nil' previously, while those on coke and semi-coke have increased to 5%.
"We welcome and thank the Government for removal of export duty on steel products. It will be a big sentimental booster to revive domestic steel demand particularly when the global steel demand is on the steep decline, said Seshagiri Rao, Joint MD, JSW Steel & Group CFO.
Further, Bimlendra Jha, managing director, Jindal Steel and Power said that they are restoring the relationships that were broken because of the export duties.
“These markets are particularly in Europe, and the relationships will be restored. There is consistent demand for plates in Europe for the ongoing projects,” he added.
According to Jayanta Roy, Senior Vice President & Group Head, ICRA Ltd this relief comes on the back of domestic steel prices correcting by 15-20% since these duties were earlier imposed on May 21, 2022, and finished steel/iron ore/pellet exports contracting by a steep 55-65% year-on-year in H1 FY2023.
“With exports becoming unviable and elevated raw material and energy costs nibbling at margins, the operating profits of the domestic steel industry slumped to a nine-quarter low in Q2 FY2023. We believe that the latest measure will help pull up the industry’s profits from the second quarter lows as companies now get the freedom to explore overseas markets, depending on the pricing environment," Roy added.
On the technical front, analysts said that the Nifty Metal index is in short term uptrend with support placed around 6,250 levels. “Steel stocks looks sideways to positive in the near-term, and as dollar index has seen a correction, recently, it is a good sign for metal stocks as metals are inversely related,” said Ruchit Jain, Lead Research, 5paisa.com.
On Monday, Nifty Metals ended nearly 1% down. The top three positive contributors in the sectoral indices were Jindal Stainless (Hisar), which closed over 7% higher, whereas NMDC, and APL Apollo Tubes closed over 3.51 and 2.16%, respectively.
On the other side, Jindal Stainless closed 8.6% higher. Analysts believe NMDC, and Jindal Stainless to be on a strong uptrend, and expect this positive momentum to continue.
“Jindal Stainless can move towards 193-195 level with 175 as the immediate support, while for NMDC 121 level is the potential upside with 111 as the support level,” an analyst said.