The Hindu Business Line : Steel stocks wilt under pressure to reduce price

With inflation hitting a 13-month high of 6.68 per cent last week, the Government feels that it is crucial to control the price of iron ore, in order to contain inflation. The Government has asked the producers of iron ore to cut the price of the raw material between 10 per cent and 20 per cent.

Customs duty

The Government is considering measures such as excise duty cut on finished steel and reducing customs duty on imported steel to keep a check on their prices.

“With the prices reduced, the profit margins of these companies will come down. That is why these scrips have been underperforming the market for the past two to three days,” said Mr Sanjay Someshwar, a sub-broker with Ventura Securities Ltd.

Some of the stocks that got hammered today on the bourses include Steel Authority of India (4 per cent), JSW Steel (4.40 per cent), Tata Steel (3.21 per cent), Vallabh Steels (6.48 per cent) and Visa Steel Ltd lost 3.12 per cent.

Additional hit

Mr Someshwar added that the large caps have taken a bigger hit as it is the case always. The ‘big-wigs’ are the first to be sold off and then only will people sell the smaller stocks.

Ms Anita Gandhi, Head Institutional Business, Arihant Capital Markets Ltd, said SAIL took an additional hit because of the Sixth Pay Commission, which will affect most of the PSU stocks.

Another reason why the steel sector felt the heat on Wednesday was because the Railways has imposed a heavy congestion surcharge as well as changed the freight classification for iron ore to a higher rate.

“This would hike transportation cost of iron ore by about Rs 15 a tonne to about Rs 185 a tonne, which would in turn affect the profitability of these companies,” said Ms Gandhi.

Cautious

Analysts say that there is a lot of uncertainty around what the Government would do regarding the steel prices, which is the reason for the volatility of these scrips in the market.

“The reason why the steel prices have been going up is because of the deficit between the demand and supply of steel. There is more demand than supply. So a cut in steel prices will adversely affect these companies. With the Government now intervening, the investors are little cautious of this sector,” said Pawan Burde, Metal and Mining analyst with Angel Broking Ltd.

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