The import duty on flat and long steel raised to 10% and 7.5%, respectively: After a long wait, the government has announced a hike in the import duty on flat and long steel to 10% and 7.5%, respectively (from 7.5% and 5% earlier), yielding to the pressure from steel producers. Chinese export HRC (hot rolled coil) is currently trading at $350/tonne and the import duty hike implies an increase of R600/tonne ($10/t) on the landed steel prices. The hike stems from the government’s decision to impose anti-dumping duties on HR stainless steel imports from China, Korea & Malaysia earlier. We believe the government has finally acknowledged the threat from cheap imports and the recent steps, though small, are in the right direction.
Some respite; is this enough? The last year was extremely challenging for domestic steel. The sector was the worst performer among the major producing regions. Indian steel stocks are down 50% on an average over the last year; in line with a 50% year-on-year cut in Q4FY15 combined Ebitda for the steel companies. While demand has been lacklustre, the region saw an unprecedented surge in steel imports, which rose 71% y-o-y in FY15.
Having been significantly affected by the rise of cheap imports (especially from China), domestic steel companies have been lobbying for a substantial hike in import duties on steel products. Therefore, the announced duty hike will be welcomed by the domestic steel sector, but much more needs to be done to materially revive the sector, in our view. Domestic steel is still at a premium of $50-60 to landed imported HRC price and the hike is too small to offset this. We are currently in a seasonally-weak period for domestic steel consumption and the duty hike might provide some support for steel prices but will not trigger a rebound, in our view.
JSTL should gain the most, but negative on Sail and Tata: We don’t think that things will improve any time soon, but we do believe the worst seems to have been priced in. In our view, domestic demand has bottomed out; domestic iron ore supply is easing and the government is finally acting against cheap imports. We are negative on integrated steel players like Sail and Tata, but believe JSTL should benefit the most (lower costs due to easing of domestic raw material supply) once the sector starts recovering.
Source: Financial Express
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