By Malvika Gurung
Investing.com -- Domestic steel companies plunged nearly 18% on Monday, in response to the Government's announcement to hike the duty on exports of iron ore to up to 50% from 30%, and imposed an export duty on some steel intermediaries to 15% on Sunday.
Brokerages lowered the outlook and target prices of steel companies, seeing the development as negative news for the sector.
Global brokerage CLSA believes that the Government’s move will likely divert more supply to domestic markets, which could drive the prices lower. It has cut its estimates across all its steel coverages and downgraded the stocks.
India has been running a trade surplus in the ‘Iron and Steel’ product category for the past 2 years, and dependence on imports fell alongside. In FY22, the iron and steel imports stood at only 2.1% of total imports, which was 2.8-3.6% from FY06-16.
Meanwhile, exports of the product line made up about 5.5% of the total exports in FY22, stated Motilal Oswal (NS: MOFS ).
The move will impact steel companies’ current expansion plans, as the 15% export duty will make Indian steel prices less competitive globally, and they are not sure whether the domestic market will be able to absorb the surplus, stated Swastika Investmart (BO: SWAF ).
Moreover, with the imposition of export duty, steelmakers from other countries would benefit to grab India’s vacated position of the global share. This will affect the sector’s valuation and the ability to invest in capacity growth in the long term.
“We are putting the sector under review and wait for the management of all steel companies to elaborate their thoughts and strategies over the next few days on how to deal with the current situation", stated a Motilal Oswal Research report.
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