Markets
Steel stocks rally on safeguard duty proposal—but the real test lies ahead
Summary
- A proposed duty on steel imports could boost domestic producers, but its impact may be limited. Global factors—from China’s supply glut to shifting trade policies—will dictate the industry’s trajectory.
Shares of steel producers such as SAIL Ltd, Tata Steel Ltd, and JSW Steel Ltd are in focus after the Directorate General of Trade Remedies (DGTR) recommended a safeguard duty on steel imports amid rising global protectionism. The DGTR’s proposal, submitted to the finance ministry, suggests a 12% duty on most steel grades for 200 days, with exemptions for imports priced above $675 per tonne for hot-rolled coil (HRC), $824 per tonne for cold-rolled coil (CRC), and $964 per tonne for coated steel.
The recent rally in steel stocks suggests that investors are already pricing in the potential benefits of the duty on steelmakers' earnings. However, the finance ministry has yet to approve the recommendation. If implemented, the duty could push up production costs for downstream industries, adding to inflationary pressures. That said, the advantage of imports has already diminished in recent months due to the depreciation in the Indian rupee against the US dollar.
While the safeguard duty may provide some support to steel prices, its impact will be limited. Other factors, such as domestic demand, export trends, and China’s market conditions, will play a crucial role.
Read this | Steel prices climb as ‘safeguard’ duty looms, user industries warn of cost inflation
Over the past few years, India’s steel industry has faced mounting import pressure, with inbound shipments projected to reach 10 million tonnes in FY25, up from 8.3 million tonnes in FY24 and 6 million tonnes in FY23, according to a 17 March report by Kotak Institutional Equities.
The surge is driven by weakening demand in China—the world’s largest steel market, which accounts for nearly half of global consumption—amid a real estate downturn and broader economic slowdown. This has led to a flood of Chinese steel in global markets, pushing India’s steel exports down nearly 34% year-on-year in the first 11 months of FY25, as per the Kotak report.
Read this | Tata Steel, JSW Steel Q3 hurt by price erosion. Rebound on the horizon?
An Axis Securities Ltd report pointed out that China’s steel exports in calendar year (CY) 2024 stood at 111 million tonnes, a 22% increase year-on-year and the highest since CY15. However, the situation in CY25 is expected to reverse with significant duties imposed by the major importers.
India, meanwhile, is projected to see its FY25 net steel imports rise to the highest level since FY16. While domestic consumption remains strong, rising net imports and new capacity additions have kept prices in check, particularly for flat steel products, which account for nearly 95% of total imports.
On the upside, steel companies may have seen their profitability bottom out in Q3FY25. Prices were raised in February and early March, largely in anticipation of the safeguard duty. The top four steel producers saw their aggregate Ebitda (earnings before interest, tax, depreciation and amortization) per tonne drop 19-33% year-on-year in Q3FY25.
Read this | India’s top steelmakers take diverging paths on iron ore sourcing
However, a price recovery, combined with lower raw material costs, could provide relief.
Domestic steel currently trades at a 5-7% premium over imports. Still, the proposed duty could make it more competitive by raising the landed cost of imports by nearly ₹5,000 per tonne, according to a 20 March report by Motilal Oswal Financial Services Ltd.
Steelmakers are also set to benefit from softer raw material prices. Coking coal prices have declined more than 10% from their Q3 levels due to weak global steel demand, while iron ore prices are expected to remain subdued. However, the impact of mining taxes introduced by several states has yet to reflect on prices fully.
Also read | What is at stake for India amid Trump's tariff war on steel and aluminium, in six charts
Over the past year, shares of JSW Steel Ltd and Tata Steel Ltd have gained 15% and 13%, respectively, while those of SAIL Ltd have declined by 2%, compared with an 18% rise in the Nifty Metals Index. The outlook for these stocks will depend on demand trends and an expected improvement in profit margins.
