tata steel, jsw steel, SAIL

Steel companies’ stocks hit lower circuit. Tata Steel, JSW Steel, SAIL

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Today’s stock market: Three steel equities struck the lower circuit within minutes of the opening bell. Tata Steel, Steel Authority of India (SAIL), and JSW Steel are the three shareholders. The announcement by the central government to calibrate custom tax on raw materials for iron and steel products by cutting import duty on some steel items and levying export charge on others has most likely not gone down well on Dalal Street.

Tata Steel’s share price today opened with a near-73 per share downside gap and went on to close at 1053.20 per share on the BSE. SAIL’s share price fell in early morning trades, reaching a low of 74.70 on the BSE. Similarly, JSW Steel’s share price opened under heavy selling pressure and fell to a low of 567.80 per share.

Calling export duty on steel as big negative for the sector, CLSA report says, “In a bid to curb inflation the Ministry of Finance announced export duties on most steel products, along with an excise duty cut for petrol and diesel. This is likely to divert more supply towards the domestic market. With prices now being guided by the export parity philosophy (instead of import parity) it could lead to a sharp correction in steel prices in India. Lower coking coal and iron ore prices and a tighter global balance are unlikely to offset this. Hence, we cut our estimates across our steel company coverage and downgrade all three stocks: Tata Steel, from BUY to Underperform, JSW from, Underperform to SELL, and JSPL, from BUY to Outperform.” However, CLSA report maintained that the decision augurs well for cement and consumer durables.

According to an ICICI Security report, the explanation for today’s steep drop in steel stocks is as follows: “To safeguard higher domestic supply and control growing prices, the Indian government has placed export restrictions on steel, steelmaking raw materials, and middlemen. The majority of steel/stainless steel exports will now be subject to a 15% export tariff (from nil earlier). We consider this as an exceedingly bad event for the steel industry and anticipate widespread multiple de-rating. Steel/stainless equities under our coverage are downgraded to HOLD/REDUCE/SELL. Tata Steel, JSPL, JSW Steel, and SAIL have been downgraded to REDUCE.”

“The government said that it will calibrate customs duties on raw materials for iron and steel goods by lowering import duties on some steel items and raising export duties on others. Iron and steel are two commodity categories where India has had a trade surplus over the last two years. The trade surplus in FY22/FY21 was USD10.3 billion/USD3.8 billion. India’s reliance on ‘iron and steel’ imports has decreased over time, and it now accounts for only 2.1 percent of overall imports in FY22, down from 2.8-3.6 percent in FY06-16. In fact, India’s ‘iron and steel’ exports accounted for 5.5 percent of total exports in FY22, the largest share in at least a decade “Motilal Oswal, a domestic brokerage, stated in a note.

“To contain inflationary pressures, the government has chosen to levy export tax on iron ore and steel while decreasing import duty on coal, ferronickel, a critical raw material for steelmakers,” said Santosh Meena, Head of Research at Swastika Investmart Ltd. This will lower steel prices, which would benefit industries such as infrastructure and real estate. Steelmakers, on the other hand, are dissatisfied with the move because their current expansion plans are predicated on global and domestic market growth. The 15% export levy on flat steel would reduce Indian steel prices globally, and most steel makers are unsure whether the domestic market will absorb the extra production. All of these issues will drive steelmakers to reconsider their long-term plans.”

Disclaimer: The opinions and recommendations shown above are those of individual analysts or brokerage firms, not Brandwars.

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