Metal stocks slide as government imposes export duty
- BSE Metal index was trading 1,537.59 points lower, or 8%, at Rs 17,718.52
- Jindal Steel and Power fell 17%, the most since January 2008
- The government increased duty on iron ore by up to 15%
Shares of steel manufacturing companies plunged heavily on May 23 as brokerages downgraded the sector after the government levied export duty on 11 iron and steel intermediates and steel products. The government levied an export duty of 15% on almost all major steel products.
The S&P BSE Metal index closed 1,604.55 points lower, or 8.33%, at Rs 17,655.55. Jindal Steel and Power fell 17%, the most since January 2008, Tata Steel fell 12%, the biggest decline since August 2015, JSW Steel was down 11%, its the biggest loss since May 2020 and SAIL declined 11%, the lowest it has touched since May 2022.
NDMC was trading 10% down, the lowest it has been since August 2020, Vedanta was down 6% and Hindalco Industries fell 5%.
Apart from this, non-index stocks like Sandur Manganese & Iron Ores, Godawari Power and Ispat, Jindal Stainless and Sunflag Iron & Steel Company were down 10-20% on the BSE.
"We see this as an extremely negative development for the steel sector and expect broad-based multiple de-rating. We downgrade steel/stainless equities under our coverage to either hold/reduce/sell", ICICI Securities said in a note to investors.
On May 21, the government increased duty on iron ore by up to 15% and some steel intermediaries by 15% to boost domestic availability.
“While the contours of the tax structure and the detailed earnings impact of the steel equities are yet to be known, it can be broadly assessed that Rs 5,000-7,000/te of impact on EBITDA is very much possible on integrated steel players, while for unintegrated steel equities like JSW Steel the impact can be Rs 5,000/te.
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“While there is an inclination (that we can see from our discourse with investors) to club this decline with the expected decline in EBITDA/te caused by cyclical factors, the same should be demarcated", ICICI Securities report said.
The brokerage firm downgraded Tata Steel, JSPL, JSW Steel, and SAIL to “reduce”. It also downgraded SMEL and Jindal Stainless to “hold” from “buy”.
According to the Indian Steel Association (ISA), the imposition of export duty on steel would send a negative signal to investors and adversely impact the sector’s capacity utilization.
“In a bid to curb inflation the Ministry of Finance announced export duties on most steel products, along with an excise duty cut for petrol and diesel. This is likely to divert more supply toward the domestic market. With prices now being guided by the export parity philosophy (instead of import parity) it could lead to a sharp correction in steel prices in India,” said a report by CLSA.
It downgraded Tata Steel from ‘Buy’ to ‘Underperform’; JSW from ‘Underperform’ to ‘Sell’, and JSPL from ‘Buy’ to ‘Overperfrom’.
Industry body Federation of Indian Chambers of Commerce & Industry (FICCI) has sought a three-month period from the government to clear orders amounting to over 2 million tonnes of steel.
FICCI Steel committee co-chairperson VR Sharma, who is also the MD of JSPL, said that the ongoing Russia-Ukraine war has allowed Indian steel companies to fill in the demand for steel in Europe, the second largest importer in the world.