Steel prices may rise due to new safeguard duty

Shares in the steel industry are reacting positively to the recent imposition of a 12% safeguard duty. This duty is expected to drive up steel prices by Rs 1000 to Rs 2000 per tonne. However, experts caution that broader geopolitical and economic uncertainties, particularly from China, could cloud the industry's future. Aditya Welekar from Axis Securities notes that while expectations were high for a larger duty increase of 20% to 25%, the actual outcome of 12% is lower than anticipated. He pointed out that steel mills had already raised prices by Rs 1000 to Rs 1500 in early March, suggesting that much of the positive news has already been factored into stock prices. Welekar highlighted that import restrictions have significantly reduced steel imports, which were down by 40% in January and February. Despite this reduction, he believes that valuations for steel companies are becoming less attractive as stock prices have already rallied in recent weeks. The safeguard duty will impact the pricing dynamics between domestic and imported steel. Without the duty, imported steel prices are nearly the same as domestic prices. With the duty in place, the difference could reach Rs 5000 per tonne, giving domestic steel mills a cushion to increase their prices. Among the companies in the industry, Steel Authority of India Limited (SAIL) is expected to benefit the most. A Rs 1000 hike in steel prices could increase SAIL’s earnings before interest, taxes, depreciation, and amortization (EBITDA) by 14% to 15%, while Tata Steel would see a smaller increase of about 4% to 5%. Looking ahead, Welekar predicts that while steel prices could rise further, the trajectory will largely depend on conditions in China. The Chinese economy is facing some challenges, particularly in its property sector, which is affecting global steel demand. Overall, positive sentiment in the steel market is welcomed, but ongoing monitoring of the geopolitical landscape, especially related to China, is crucial for predicting future price movements.