Steel export taxes put pressure on investment returns;  Tata Steel, SAIL could see lower implementations

Steel export taxes put pressure on investment returns; Tata Steel, SAIL could see lower implementations – Mail Bonus

NEW DELHI – In its final step to tackle rising inflation, the government on Saturday imposed steel export duties at the same time as it raised export duties on iron ore and reduced import duties on key raw materials for the industry to zero.

The decision aims to lower domestic steel prices and protect the downstream industry following the rise in international commodity prices following Russia’s invasion of Ukraine.

The move to impose a 15 percent export tax on steel products, the first step of its kind, will have a major impact on the industry’s exports, Axis Securities said in a comment.

“The 15% export tax will reduce the margin on steel exports, which was attractive last year due to lower exports from China (due to the carbon emissions campaign) and higher energy prices in Europe,” the broker said.

In the two years since FY20, India’s total steel exports increased by 74 percent to 20.5 million tonnes, leading to an increase in industrial utilization capacity to 83 percent in the previous fiscal year from 79 percent in FY20.

The share of exports in total sales was highest for JSPL Steel- 35 percent on FY21, followed by JSW, which had a 31 percent share in the first nine months of FY22, Tata Steel with 14 percent, and

at 9 percent, said Axis Securities.


The government’s actions included a 15 percent export tax on long and flat steel – unmixed, mixed and stainless, as well as a sharp increase in export taxes on iron ore and concentrate exports from 30 percent to 50 percent.

In addition, the government announced tariffs on iron ore of all categories against 30 percent tariffs imposed solely on iron ore, which is 58 percent and higher before the decision, Axis Securities wrote.

Export taxes on iron balls also rose sharply from zero to 45 percent, while the tax on pig iron was raised from zero to 15 percent.

A step that, according to Axis Securities, would provide manufacturers with stainless steel relief was a reduction of ferronickel tariffs to zero from 2.5 percentage points.


While the government’s willingness to curb rising consumer prices is understandable, the introduction of a steel export tax will have a significant impact on the sector’s export targets at a time when domestic industry intends to use capital expenditures to increase China’s production capacity to deter steel exports.

As domestic steel prices appear to be facing downward pressure if major steel companies move their exports to the local market, existing companies would see a significant hit on the profit margin, said Axis Securities.

“We believe that the steel companies will protect their domestic sales margin by reducing their capacity rather than spreading sales volume in the domestic market. We will monitor the comments of steel companies on their policies to counteract the negative effects of this announcement. ”


According to Axis Securities, this measure by the government could lead to a 7 percent reduction in domestic steel prices, with a 15 percent reduction in export performance due to the new tariff.

Currently, the domestic price of hot-rolled oil is above the price coming from China, the broker said, adding that it expects local prices to adjust in line with the import balance.

As the supply of domestic iron ore improves, local iron ore prices are expected to fall, said Axis Securities.

“On the other hand

and SAIL, we do not see much benefit from the reduction in the price of iron ore as both companies have 100% iron ore in their arms. ”

JSW and JSPL, however, would benefit from the iron ore as they are not fully integrated on the front of the iron ore, the broker said.

After taking into account an 8 percent reduction in mixed production and savings due to coal prices, Axis Securities has reduced its EBITDA estimate for SAIL by 30-36 percent and for Tata Steel by 14 percent in the current financial year and at the end of the year. Next.

Accordingly, the target price for SAIL has been reduced from Rs 125 to Rs 75 and for Tata Steel from Rs 1,700 to Rs 1,390, said Axis Securities.

“We lower SAIL in HOLD from BUY and keep BUY on Tata Steel.”

(Disclaimer: The opinions, recommendations, opinions and opinions of the experts are their own. This does not represent the views of the Economic Times)

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