STEEL WOBBLY

While steel companies have witnessed a relief rally in recent weeks, caution is warranted as steel prices are not expected to rise materially in the near term

Indian steel stocks have rallied in the last few weeks, outperforming the benchmark equity index. The rally was mainly on the back of expectations of reduction in export duty.

Steel companies had taken a beating after the government imposed a 15% export duty on a range of finished steel products in May ’22. Exports had turned lucrative for Indian steel makers in the last few years.

For instance, for the first time in two decades, China was a net importer of steel for a few months in 2020. This was unprecedented. China’s production had lagged domestic consumption in recent times, which boosted international prices. Indian companies too benefited from this demand-supply mismatch.

Sensing the opportunity, Indian steel makers exported a good amount of steel at remunerative prices since 2020. According to Crisil Research, steel exports from India reached a record high of around 18.3 million tonnes in fiscal year 2021-22.

With higher realization per tonne of steel sold, Indian companies used the opportunity to deleverage their balance sheets and gain global market share. This explains the rally of steel companies on the Indian bourses since 2020.

While the imposition of import duty in May led steel companies to slide on the Indian bourses, there are speculations that the government may roll back the hike in import duty in phases.

IMPORT DUTY IMPACT