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Steel stocks remained unmoved after the Budget, despite the Rs 2.14 lakh crore spend announced for infrastructure and the export duty slapped on iron ore, a key steel input. Worries about other inputs such as coking coal remain, and players may also enjoy limited power to hike steel prices to pass on the input costs. Listed iron ore players such as Sesa Goa and NMDC were down 7.3 per cent and 1.7 per cent respectively, with uncertainty over their ability to pass on the export duty hike to steel producers.
IRON ORE
Sesa Goa, which exports close to 90 per cent of its iron ore produce, is the most impacted by the 20 per cent levy. With the export ban at its Karnataka mines and the closedown at the Odisha mines, the company's low-grade exports from Goa may not command a 20 per cent price hike in international markets. This is likely to further hurt the miner, which struggles to meet its ambitious growth target of 50 million tonnes, from around 20 million tonnes currently.
NMDC exports a mere 10-15 per cent of its overall volumes. In addition, it sells high-grade lumps to Korean and Japanese steel mills on long-term contracts that are cheaper for the likes of Nippon and POSCO. The more limited 5 per cent hike on iron ore lumps, coupled with a ready-to-buy domestic market, mean a limited impact on NMDC. With eastern States such as Chhattisgarh mulling an export ban, the domestic iron ore market could get a lot more competitive for domestic miners, especially with regard to the more competitive Australian and Brazilian peers.
The rather muted response from the major steel stocks owes to the captive iron ore mines of SAIL and Tata Steel, which leaves them untouched by the export duty. JSW Steel is a beneficiary of the hike in duties as it purchases over 80 per cent of its iron ore requirement from the market.
BENEFITS
With more miners of iron ore ‘fines' looking for customers with local sinter capacity, JSW Steel could snap up domestic iron ore at more competitive prices.
Other moves that pointed to tacit support for the steel industry include the reduction in ferroalloys import duty from 5 to 2.5 per cent and an unchanged excise duty rate of 10 per cent. Stainless steel producers got a shot in the arm with the removal of import duties on stainless steel scrap, which lowers the input cost. This bodes well for producers such as Jindal Stainless who are reeling under escalating raw material costs over the past two quarters.
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