Nifty Metal bleeds 7% after govt hikes export duty on steel products

Shares of steel companies were reeling under pressure, falling up to 14 per cent on the BSE in Monday’s trade, after the government levied export duty on 11 iron and steel intermediates and key steel products. The government levied export duty of 15 per cent on almost all the major steel products (including stainless steel).

However, in order to reduce the overall cost of domestic production of steel products, the government slashed import duty on coking coal and anthracite from 2.5 per cent to zero. Meanwhile, import duties for coke or semi-coke and ferronickel were lowered too, from 5 per cent to zero and 2.5 per cent to zero, respectively.

Among individual stocks, Tata Steel plunged 14 per cent to Rs 1,001.55, hitting 52-week low on the NSE. Others like JSW Steel, Jindal Steel & Power, Jindal Stainless (Hisar), NMDC and Steel Authority of India (SAIL) from the metal index were down in the range of 10 per cent to 13 per cent.

At 09:29 am; Nifty Metal index, the top loser among sectoral indices, was down 7.3 per cent, as compared to 0.03 per cent decline in the Nifty50 index.

Besides this, Godawari Power & Ispat, Sandur Manganese & Iron Ores, Sarda Energy & Minerals, Jindal Stainless and Sunflag Iron & Steel Company, the non-index stocks were also down between 10 per cent and 20 per cent on the BSE.

Given this, steel stocks have almost corrected between 20-40 per cent from their 52-week highs due to rising coal prices, falling demand and weak international prices.

Meanwhile, analysts at ICICI Securities believe that the government's export duty would drive volumes to domestic markets. "On the back of Russia-Ukraine conflict there was a healthy uptick witnessed in global steel prices over the last few months. Exports had become a lucrative market for domestic players due to healthy realisations. However, the recent step to levy export duty on various steel products would lead to reasonable quantum of volumes to be shifted to the domestic markets. Also accessing the current lucrative global export would come at a cost," the brokerage firm said.

While import duty on coking coal was reduced to nil from 2.5 per cent, analysts believe that the 15 per cent export duty on steel products exceeds small benefit of import duty cut in coking coal.

That apart, India is a steel surplus country where companies were encouraged to set up capacities for exports. India exported about 13.5 metric ton (MT) finished steel in FY22 and additional 5 MT semi-finished. It has also imported about 4.8 MT finished steel in FY22.

"Due to various measures announced by the government, near term correction in steel stocks is imminent. We believe the ramification of such a measure taken by the government will be felt widely across all parts of the industry. We would wait for the industry to articulate how they plan to navigate these circumstances before taking a view on the stocks," Motilal Oswal Securities said.