Shares of steel companies were mostly under stress on Monday, in sync with the broader market and metal index, even after the government removed duties imposed on export of steel and iron ore products. The move is likely to provide much needed respite to the steel sector which is battling with high-cost inflation and challenging macroeconomic environment globally. Industry experts, however, believe that the cut in export duty is unlikely to provide any significant near-term benefit to domestic steel players as steel prices in the global market are currently muted, hence export volumes are likely to pick up notably only when international prices recover.

The BSE metal index dropped 0.96% in intraday trade on Monday, in line with the benchmark index Sensex, which tumbled as much as 550 points, or 0.9%, by 1:00 pm. The top losers in the metal space were JSW Steel, Hindalco Industries, Jindal Steel & Power (JSPL), and Tata Steel. Bucking the trend, Steel Authority of India (SAIL) and NMDC shares were trading higher, gaining up to 4%.  

JSW Steel was the top laggard in the metal sector by falling as much as 2% on the BSE, followed by Aditya Birla-owned metal company Hindalco, which dropped 1.9% in intraday trade so far. Besides, Shares of Tata Steel, the country’s largest steel manufacturer, and OP Jindal Group’s JSPL, were also trading lower with marginal losses.

Export duty on steel, iron ore removed

In a bid to boost the domestic steel industry and exports, the central government last week scrapped the 15% export duty on steel products, which was levied during May 2022. Steel products now attract nil export duty compared to 15% earlier.

The government also scrapped the export duty on iron ore lumps and fines below 58% Fe content and iron ore pellets. Export of iron ore lumps and fines above 58% Fe content will now attract a lower duty of 30%, from 50% imposed earlier. The import duty concessions on anthracite/PCI coal, coking coal, coke & semi coke and ferronickel have also been withdrawn. All these changes in duty came into effect from November 19, 2022.

Analysts view on withdrawal of export duty

According to domestic brokerage ICICI Securities, the withdrawal of export duty augurs well for domestic steel players, but over a longer term horizon. “Global steel demand has turned subdued since May 2022, which has put downward pressure on steel prices. As steel prices in the global market are currently muted, hence export volumes are likely to pick up notably only when international prices recover. However, 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 global steel prices strengthens,” the report noted.

“Even though current domestic HRC prices are at a premium to landed cost of imports, the recent relief measure is likely to aid in keeping domestic steel prices stable around current levels in the near term.  While we do not expect a major uptick in domestic steel prices, we believe a significant sector headwind has been removed,” it added.

The agency, in its report, said that the export market is more favourable for stainless steel players such as Jindal Stainless (JSL) & Jindal Stainless (Hisar) (JSHL) as compared to carbon steel players as European players have curtailed production due to the ongoing energy crisis.

"We believe the roll back of export duty is unlikely to have a significant impact on steel realisations given India export price is at a steep discount to domestic HRC price. Export volumes are expected to pick up given low base – exports for October have declined 66 per cent YoY while year-to-date exports have declined 55 per cent. A 20% increase in finished steel inventory from March-September will likely result in higher exports, as steel companies start chasing global markets. Improved competitiveness of India against Asian countries post rollback of export duty," JM Financial said in its report.

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