As exports are unlikely to return to peak levels and prices are expected to remain weak, analysts recommend selected stocks.
, , and among others.
“The removal of the 15% duty should limit pressure on domestic steel prices by allowing mills to export any excess stock they hold,” he said.
on a note. “We remain conservative on our steel demand and price outlook and do not see much upside potential in the sector.” Tata Steel and JSPL are better placed due to reasonable valuation and low leverage, the broker said.
Most large-cap steel stocks fell on Monday after the announcement.
1.7%, Tata Steel 1.2% and JSPL down 0.3%. Mid-grade metal stocks such as , Jindal Stainless, Hissar, , , and Pennar Steel gained between 5% and 15% on Monday.
The government withdrew the 15% export duty imposed on steel products in May this year. The government has also withdrawn export duty on selected iron ore lumps. Exports of iron ore lumps and fines above 58% will now attract a lower duty of 30% compared to the previous 50%.
“The lifting of export duty on steel is a timely decision to boost the fortunes of the steel industry, which is facing a serious challenge of falling demand and price correction,” said VK Vijayakumar, strategist.
“In October, India’s total exports fell by 16.7% and the decline in steel exports was large, and a course correction in this trend is necessary to achieve the government’s projected 7% GDP growth rate.”
Following the imposition of export duty in May 2022, India’s steel exports fell by a sharp 53% to 5 million tonnes in the first half of FY23 from 11 million tonnes in the same period of the previous year. Exports of iron ore and pellets fell sharply by 63% to 6.98 million tonnes from 18.9 million tonnes in the first half of FY23.
Nomura said the decline in steel export prices for India was largely in line with its peers, driven mainly by a slowdown in global and Chinese demand.
“We do not expect a significant increase in export prices following the suspension of the export duty on steel,” Nomura said in a note to clients. “With the removal of the export duty, we expect export volumes to recover, thereby preventing oversupply and having a slight negative impact on steel prices. Thus, in our view, Indian domestic steel prices could have moved closer to import parity prices had the export duties not been lifted.”
Steel stocks fell sharply after the government imposed an export duty on May 21. Stocks such as Tata Steel, Jindal Steel and NMDC fell 26-35% in the month, compared with a 5% decline in the Sensex.
Ashish Kejriwal, analyst at Nuvama Research, said, “The rollback provides some relief to steelmakers to get premium in the domestic market and thus domestic prices should not fall in a hurry.” “This should also impact the valuation multiple, resulting in us increasing the valuation multiple of JSL, JSPL, JSW and Tata by 4-10%.”