Tata Steel, JSW, SAIL and JSPL will lose half of their export biz as government wages war on inflation
- Shares of India’s largest steel companies tumbled sharply since the government imposed export taxes of 15% on steel.
- The move is expected to slow down the steel making company’s growth outlook.
- In the meantime, the situation will definitely bring down steel prices in the domestic market because of increased supply.
AdvertisementThe government’s efforts to control rising prices of commodities could mean slow growth and lower profits for manufacturers.
The Indian government imposed a 15% export tax on eight steel products. While it also slashed the import duty on crucial raw materials for the sector to zero, top steel makers who had been banking on exports like – Tata Steel, SAIL, Jindal Steel and Power (JSPL) and JSW Steel - will be majorly impacted.
The government aims to bring down prices of steel in the domestic market by driving up the volumes. This move will have a direct impact on the core inflation which has been rising for the last few months.
|Steel making companies||Returns in one month|
|Jindal Steel and Power||-26%|
The move takes away the sheen from the sector with slowdown in profits, capex, stock price
Analysts say that this is the first time in history that it’s imposing the duty, and it will have a major impact on the steel industry’s export ambitions.
India’s total steel exports increased by 74% in two years over FY20 to FY22 to 20.5 million tonnes, which led to improved capacity utilization of the steel industry to 83% in FY22 from 79% in FY20.
The export tax will also reduce the margins on steel exports, which were attractive for the last one year. Indian companies had been gaining after lower exports from China due to its de-carbonisation drive; and higher energy prices in Europe, as per Axis Securities.
“The move would impact the export plans of the domestic steel industry which was planning to put capex to enhance its steel production capacity and increase its share in the global export trade to capitalize on China disincentivizing its steel exports,” said Axis Securities.
The brokerage firm has slashed target price of Tata Steel to ₹1,390 per share from ₹1,700 earlier. It also downgraded SAIL to Hold from Buy while cutting its target price to ₹75 from ₹125 earlier.
Analysts assume that the producers’ exports will reduce by 50%. “This will lead to increased steel supply in the domestic market which will lead to reduction in domestic steel prices,” Ashish Kejriwal, research analyst at Centrum.
He assumes ₹5,000 per tonne reduction in domestic steel prices owing to increased supply in the domestic market.
“The move will severely impact domestic steel prices and in turn profitability of steel players, given elevated coking coal prices. We believe lower earnings would impact growth capex, increase debt on the books and lower steel sector valuation,” said a report by Sharekhan.
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