Export Duty On Steel, Iron Ore Slashed: Here's What It Means For Jindal Stainless To JSW Steel

The government's decision to remove export duties on steel and associated products will be positive for the entire ferrous pack from a medium to long-term perspective, according to analysts.

However, they expect no near near-term benefits as international prices are much lower than domestic prices. Also, the removal of the levy is unlikely to raise exports significantly as China is entering the winter phase, a traditionally weaker demand period.

From Nov. 19, exports of specified pig iron and steel products and iron ore pellets will attract 'nil' export duty.

The export duty on outward shipment of iron ore lumps and fines with less than 58% iron content will be 'nil'. In the case of iron ore lumps and fines with more than 58%, the rate of duty will be 30%.

Import duty relief on coking coal and ferro nickel reduced has also taken back with levy of 2.5% duties versus nil previously.

The tax, when imposed, was aimed at stemming exports to help increase domestic availability in order to aid lower prices.

Here's what brokerages made of the tax being removed:

• Top gainers from the move: Jindal Stainless Ltd., Godawari Power & Ispat Ltd., JSW Steel Ltd., Jindal Steel and Power Ltd and NMDC Ltd..

• The move is positive for the entire ferrous pack in medium to longer run perspective but offers no near-term benefits at this point of time.

• Indian trade-level hot rolled coil prices are hovering around Rs 56,100 per ton, nearly 15-17% premium to imports which would continue to put pressure on the domestic players unless international prices start inching up.

• Exports unlikely to jump significantly as China is entering winter phase (traditionally weaker demand period).

• Considering exports offers for HRC will fetch Rs 8,000-12,000 per ton lower net realizations depending on the geography and thus not feasible from the profitability point of view, domestic mills will continue to prefer domestic sale over exporting in near term.

• The move at most will bring higher flexibility to mills with respect to executing shipments as any additional unabsorbed volumes in domestic market can be sold in international market, albeit at lower profits.

• We were expecting the export duty to get lifted by Budget 2023 or latest post Gujarat elections. The duty removal though sentimentally positive, it will not make any major difference to domestic steel prices as exports remains unrewarding.

• Have advised clients to book profits on metals name in the last week as we believe that stock prices have already factors in most of the benefits of margin expansion and failed to acknowledge that near term spread correction which is more prominent in long players.

• Have increased sales volumes for JSW Steel and JSPL marginally to reflect the potential export resumption. NMDC does not exports and thus we have not changed the estimates.

• Export duties on steel and iron ore removed, we estimate marginal benefit to steel spreads resulting in about 5% upside risk to FY24 earnings per share estimates for JSW Steel.

• The imposition of export duty since May significantly impacted steel exports from India.

• However, the decline in steel export price for India has largely been in line with that of its peers and led by slowdown in global/China demand. Therefore, we do not expect a significant uptick in export prices following the discontinuation of export duty on steel.

• The removal of export duty is a welcome move for steel producers, but we do not see any benefit in the near term. Current export prices are at a significant discount to domestic prices due to the deterioration of global steel markets in the last six months.

• While the reduction in export duty on iron ore should allow domestic miners to increase prices given the increase in export parity prices.

• See NMDC as the key beneficiary of the government action, and raise its earnings and fair value to Rs 160 from Rs 130.

• Removal of export duty is a significant relief and a long-term positive for the domestic steel sector.

• As steel prices in the global market are currently muted, hence export volumes are likely to pick up notably only when international prices recover.

• However, the recent step of removal of export duty on steel products does provide an opportunity for domestic players to enhance their export volume notably as and when global steel prices strengthens.

• Even though current domestic HRC prices are at a premium to landed cost of imports, the recent relief measure is likely to aid in keeping domestic steel prices stable around current levels in the near term.  While we do not expect a major uptick in domestic steel prices, we believe a significant sector headwind has been removed.

• Stainless steel players such as Jindal Stainless and Jindal Stainless (Hisar) are expected to be the key beneficiaries. Currently, the export market is more favourable for stainless steel players compared carbon steel players as European players have curtailed production due to the ongoing energy crisis.

• With the recent relief, the share of exports is expected to increase for both JSL and JSHL. Earlier, for JSL, the share of exports had declined to 5% in Q2FY23 (25% in FY22) while JSHL’s share of exports had declined to 8% in Q2FY23 (15% in FY22). Going forward, we expect the share of exports to increase from Q2FY23 level. The relief also augurs well for volume growth in FY24, as JSL is planning to commission its 1 million tonnes per annum stainless steel capacity in Q4FY23.