Export levy batters steelmakers on Dalal Street

The S&P BSE Metal Index tumbled 8.33% as against the Sensex’s flat performance on Monday.

, , and & Power dipped around 11-18%. Mining major lost 12.44% as an export duty of 45-50% has been levied on iron ore and pellets.

Analysts at brokerages such as CLSA,

and downgraded stocks such as Tata Steel, JSW Steel and Jindal Steel.



“With prices now being guided by the export parity philosophy, it could lead to a sharp correction in steel prices in India,” said CLSA, cutting EBITDA (earnings before interest, taxes, depreciation and amortisation) estimates for steel companies it tracks by up to 24%.

“Lower coking coal and iron ore prices and a tighter global balance are unlikely to offset this.”

CLSA has downgraded Tata Steel to underperform from buy, JSW Steel to sell from underperform, and Jindal Steel to outperform from buy. Tata Steel’s target price has been cut to ₹1,120 from ₹1,645, JSW Steel to ₹550 from ₹770, and Jindal Steel to ₹540 from ₹695. “We see no near-term upside catalysts for the sector other than a stimulus in China,” said CLSA.

Over 90% of India’s finished steel export basket has been hit by the export levies, making it uncompetitive in the global market. Exports accounted for around 11% of India’s total steel production over the past two fiscal years, with manufacturers making $100-150 additional margins per tonne from export compared to the domestic market.

With the imposition of the levies, India’s steel export – finished and semi-finished – is set to fall from 18.3 million tonnes in FY22 to 9-11 million tonnes in FY23, according to Hetal Gandhi, director at

Research. Gandhi estimates the fall in export will drive down the utilisation levels of steelmakers by 4 percentage points to 78-80%.

ICICI Securities downgraded Tata Steel, Jindal Steel, JSW Steel and

to ‘reduce’ ratings on the grounds that the government’s move has interrupted the cycle of operating margin increases that were to play out over the next three to four quarters

“With a broad possible impact of around 30% of India EBITDA, the event has derating implications for the sector,” said ICICI Securities.

IIFL Securities has downgraded Tata Steel and Jindal Steel to reduce and cut rating on JSW Steel and SAIL to sell. The firm sees a sharp fall in domestic profitability for all domestic producers for the ongoing and upcoming financial year. Given focus on controlling inflation, the brokerage does not see these measures being reversed soon.

Agencies

Domestic steel prices could potentially correct by 10-15% in the coming months as supplies improve and demand softens during the monsoon period, as per an report.

Analysts at

expect a near-term adverse stock reaction of up to 15% on the ferrous stocks with stainless steel players and ones with significant operating leverage such as SAIL bearing the brunt. The notice also doesn’t mention a timeframe for which the export duty will be effective, adding to the uncertainty around these stocks, the brokerage’s analysts said.