Few days after the government’s policy decision to impose export duties on certain steel products, credit rating agency, India Rating and Research (Ind-Ra) in its latest report has said that the decision is likely to potentially impact steel players.
As per the report, with the imposition of the 15% export duty, the domestic price discount to international steel prices would be nullified and consequently, some of these sales volumes would be allocated to the domestic market. This would result in lower prices and thus margin compression. Alternatively, steel players may look to limit their output to maintain elevated price levels, which although is unlikely due to the negative impact of operating leverage.
Further, the rating agency said that the revocation of import duties on coking coal (previously 2.5%) would benefit blast furnace produces, although minimally given the high price levels. While most steel players have announced large capex plans due to the significant deleveraging over the past year and a half, they may defer them in view of the export duties, since it could lower capacity utilisations and thus fixed cost absorptions. However, it noted that import duties on iron ore and pellet (around 20% of steel making costs) are likely to provide some relief steel producers, especially for non-integrated producers.
