Steel stocks give thumbs up to raising of import barrier

Steel stocks have gained up to 6 per cent since Friday, thanks to the introduction of minimum import prices (MIPs) for a range of steel products,pushing up the price of imported steel higher than that of steel produced domestically.

The MIPs have been introduced for over 170 imported steel products, but are valid only for six months as of now. Indian steel manufacturers, including the big ones such as JSW Steel, Steel Authority of India and Tata Steel (Indian operations), stand to benefit from this.

But some companies such as Jindal Stainless and Mukand, which manufacture stainless steel, do not benefit since stainless steel imports have been exempt from MIPs.

Hurt by cheap imports Steel companies in India, as in other countries, have been bearing the brunt of the glut in the global steel market. With global supply exceeding demand, international steel prices have been on the downtrend. The benchmark Chinese hot rolled coil steel export prices have fallen 25 per cent over the past one year. With a slowdown in China, the world’s largest producer and consumer of steel, cheap steel exports from China are finding their way into other steel markets. During April-January, India’s steel imports rose 24 per cent year-on-year to about 90 lakh tonnes.

As a result, the operating profit per tonne of steel sold has been declining despite the fall in raw material prices. Consequently, the financial performance of major Indian steel producers has taken a hit in recent quarters.

Price support

Local steel manufactures can, however, now heave a sigh of relief thanks to the protection from imports, given the price differential created between domestic and imported products. While the benchmark domestic hot rolled coil (HRC) steel is priced at around ₹29,000 a tonne, imported HRC will now cost around ₹34,000 (minimum import price plus import duty) a tonne.

Likewise, domestic billets (₹24,500 a tonne), which are used for manufacturing long steel products such as TMT bars and wire rods, too will be cheaper compared to imported billets (₹27,00 a tonne).