Steel Stocks Torpedoed to 52-Week Lows; Here’s What Caused the Meltdown

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The start of the week was no less than a nightmare for metal stocks on the NSE. While investors were looking for a flat start to the week, looking at the Nifty 50 Futures , shareholders of steel companies braced themselves for a bleeding portfolio.

The central government’s decision to levy an export duty of 15% on major steel products spooked investors, leading to a massive plunge of over 7% in the Nifty Metal index today. Stocks having high exposure to steel such as Tata Steel (NS: TISC ), JSW Steel (NS: JSTL ), Steel Authority (NS: SAIL ) of India, etc. plunged to new 52-week lows within a few minutes of trading.

Amid the Russia-Ukraine war, commodity prices have enjoyed a sharp rally, with most of them notching to a new 52-week high. Soaring prices of metals, including steel, had presented a lucrative opportunity for exporters to tap global markets in order to realize higher profits. 

However, the government has now decided to curb the export of steel and related products to strengthen the supply in the domestic markets at competitive prices. A leash on export activity would drive higher volume to the domestic markets which would lower the cost of the steel industry. The move would noticeably benefit the manufacturing industry, primarily by beating surging input costs.

All countries across the globe have been facing the heat of rising inflation and India is no different. Although it is in a much better position than developed countries such as the US and UK, which are reporting 40-year high inflation, the recent step to minimize exports would further lower the inflationary pressures on domestic industries.

Steel is an alloy that is made with the use of other raw materials such as iron ore, Metallurgical coal, also known as coking coal, anthracite coal (has the highest carbon content), etc. In order to further increase the competitiveness of domestic supply, the government has also reduced the import duty on coking coal and anthracite coal from 2.5% to an absolute 0. However, some analysts believe that the potential decline in profits over the curb of steel export far outweighs the benefits of a reduction in the import duty of raw materials for steel.

By 12:50 PM IST, Nifty Metal tumbled 7.33% to 5,285, recovering a bit from the day’s low of 5,199.25. Individual stocks such as - Tata Steel was down 12.09% to INR 1,029, Steel Authority of India fell 10.24% to INR 74.5 and JSW Steel tanked 12.35% to INR 553.65. 

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