Analysis of Steel Industry Developments: Market Insights and Implications

Market Reaction

• Steel stocks, including Tata Steel, SAIL, JSW Steel, Jindal Steel & Power, and APL Apollo, rose between 2-7% on March 19, 2024.
  • NMDC Steel gained the most at 7%, reaching an intraday high of Rs 35.97.
  • SAIL increased by 5% to Rs 114.40.

Safeguard Duty Context

• The Directorate General of Trade Remedies (DGTR) recommended a 12% safeguard duty on imports of certain steel products.
• Imports from China, South Korea, and Japan reached a record high in the first 10 months of FY23/24, making India a net importer for the first time.
• The government initiated the investigation in December 2023, with DGTR inviting feedback for 30 days before finalizing the decision.

Analyst Views

JP Morgan Analysis

• Welcomed the safeguard duty announcement as a positive move for Indian steel.
• Expected import costs to rise by Rs 5,500 per ton, potentially increasing domestic HRC prices by Rs 2,000 (4%).
• Anticipated EBITDA improvements but noted uncertainty around the extent of benefits.
• Favored Tata Steel and JSW Steel, expecting a sharp positive reaction for SAIL due to its underperformance.

Emkay Global Insights

• Optimistic about a mid-cycle recovery despite current downturns.
• Recommended a "selective picking" approach, favoring non-ferrous stocks (e.g., Vedanta) over ferrous ones due to favorable aluminum prices.
• Buy ratings:
  • Tata Steel: Price target Rs 185.
  • JSW Steel: Price target Rs 1,100.
  • SAIL: Price target Rs 120.

CLSA Observations

• Positive on metals demand outlook driven by Chinese stimulus and European infrastructure spending.
• Favored non-ferrous metals (Hindalco, Vedanta) over ferrous ones.
• Raised price targets:
  • JSW Steel: Rs 825.
  • Tata Steel: Rs 145.

Competitive Landscape

• Indian steel companies are benefiting from reduced imports and potential profitability improvements.
• The safeguard duty is expected to protect domestic manufacturers while increasing import costs.

Long-term Implications

• The move signals government support for the steel sector, potentially boosting investor confidence.
• The impact on EBITDA and stock prices will depend on demand trends and restocking activities.
• Non-ferrous metals may continue to outperform due to strong aluminum prices and attractive valuations.