In the wake of India imposing a hefty export duty on steel exports, some key State-run steel units — RINL and NMDC’s upcoming Nagarnar plant in Chattisgarh — could see some hiccups with private players re-thinking capex plans or going for additional capacities.

India imposed a 15 per cent export duty on steel products and a 30–50 per cent duty on iron-ore exports (pellets, lumps and concentrate).

India’s private capex cycle was said to have been driven by steel companies taking advantage of the metal-super cycle. Apart from deleveraging balance sheets, the extra cash generated was being used to announce expansion plans.

Most of India’s major steel mills were thinking of increasing capacities to 40-50 million tonnes (MT) by CY 25-30.

An industry major said, they would also need to rethink bids for state-run PSU majors like RINL and whether at all it was even a “viable option now”.

“We continue to be interested in RINL. But, the export duty is an overhang. So a lot will depend on how domestic demand and export markets shape up. At present, both are down. And we would like to hold back on announcing big ticket acquisitions or perhaps go out of the way to bid for say, an RINL, “the company official said.

According to some steel industry executives, the Centre seems to have singled out the ferrous value chain, while some other industries like cement, base metals, refining, petrochem remain broadly untouched.

“This policy decision (the imposition of export duty) will result in many steel players rethinking their plans to increase capacity to 40-50 mt by CY25-30. This is also likely to complicate the divestment of the Nagarnar Steel plant of NMDC and RINL, “Motilal Oswal said in a report.

Capex review

The analyst firm said that if steel producers defer any further capacity addition (other than those committed), then India could become a net importer of steel in the next 4-5 years with an incremental $5 billion plus steel imports every year, in addition to the $5 billion steel already imported in FY22.

Cumulatively, steel-makers – that include Tata Steel, JSW, Jindal Steel and Power (JSPL) and ArcelorMittal Nippon Steel—have announced plans to ramp-up or double capacities by 2030 at a capex of more than ₹1 lakh crore.

Following the export duty levy, the pace of execution of some of these expansion projects could slow down too, as mill cash flows may weaken going forward, “if export duty is maintained over the medium term”.

“Despite going ahead with the capex, we may simply opt for lower capacity utilisation in plants. In all probability, some of the surplus steel—that was being previously exported to new markets—would find its way back to the domestic market at lower prices. So the capex plans go awry, “an industry captain told BusinessLine.

Many steel sector executives say, domestic demand, with growth projected at 6–8 per cent this year, is not enough to support large scale capex plans of Indian steel mills.

Slowing Domestic Demand

Steel demand has remained soft in May, leading to domestic hot-rolled-coil (HRC) prices contracting by 12 per cent over what they commanded in the first week of April. Domestic and imported coal prices continue to remain elevated, leading to significant input cost inflation.

Ratings agency ICRA’s analysis suggests that notwithstanding a modest decline in input costs due to a correction in iron ore prices and a waiver of import duty on coal, the industry’s operating profits could see a downward correction of $75–100/MT in the seasonally weak Q2FY23 (July-September) compared to the current quarter.

“It is not that Indian mills were exporting more at the cost of domestic orders,” VR Sharma, Managing Director, JSPL, said.

Exports Stuck

Meanwhile, a number of steel mills told BusinessLine that their export consignments – mostly to Europe - booked ahead of Sunday’s export levy have been stuck.

Many would have to cancel these orders citing force majeure or suffer losses.

Indian steel-makers have about 2 MT of pending export orders, mostly to Europe, which are stuck in ports or in various stages of production.

Metal Index down

Meanwhile, the BSE-Metal index ended in the negative on Monday, down by over 8 per cent to 17,655.22. Apart from Hidustan Zinc – up 1.48 per cent to Rs 298.55 – all other stocks on the index, which include the likes of Vedanta, Coal India, JSPL, JSW, Tata Steel, HINDALCO, SAIL, NMDC and APL Apollo – were down in Monday’s trade.

Tata Steel opened at ₹1,110 a piece and went on to hit the lower circuit of ₹1,053.20 a piece, before ending at ₹1,023.60 on Monday, a 12 per cent plus fall. The stock also hit a 52-week low of ₹1,003.15 during day’s trade.

The SAIL share price nosedived in early morning deals and hit a lower circuit placed at ₹74.70 levels on the BSE. It closed at 73.90, down by over 10 per cent.

Similarly, JSW Steel’s share price opened under huge selling pressure and hit the lower circuit at ₹567.80 per share. It also traded at a 52 week low value. And closed at ₹547.60, down over 13 per cent.

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