Analysts Split on Steel Duties: EBITDA/Tonne to Rise, But Price Hike Scope Limited

Safeguard Duty Recommendation Sparks Mixed Reactions from Market Experts

The Directorate General of Trade Remedies (DGTR) has proposed a 12% safeguard duty on flat steel products, including hot and cold rolled products, for a period of 200 days. While the decision awaits final approval from the Union Ministry of Commerce, analysts and brokerages remain divided on its overall impact on the steel sector.

Highlights from the DGTR’s Proposal

• EBITDA per tonne for steelmakers may increase, boosting profitability.
• Domestic steel prices already surged 5% last month, limiting further hikes.
• Non-integrated steelmakers may benefit more than integrated steel players.
• Proposed duty is lower than the 25% requested by the Indian Steel Association (ISA).
• Key industries like automobiles and infrastructure pushed back against higher duties.
• Global tariff trends and China’s export strategies may impact India’s steel market.

Potential Impact on Steelmakers’ Profitability

The proposed safeguard duty could improve margins for domestic steel manufacturers, particularly integrated steel mills that have in-house iron ore production.

“Steel EBITDA per tonne can potentially increase by ₹3,500-4,000 per tonne if a full 12% price increase is implemented,” said Priyankar Biswas, Analyst at BNP Paribas. This would be particularly beneficial for Tata Steel, JSW Steel, and Steel Authority of India Ltd (SAIL), which have extensive integration in iron ore.

Limited Scope for Further Price Increases

Despite the potential for improved EBITDA margins, analysts caution that the scope for further steel price hikes remains limited.

According to a Kotak Securities report, domestic steel prices have already risen by 5% in the last month, despite regional steel price weakness.

“Domestic prices are already at a 7-8% premium to import parity, leaving little room for further hikes,” said Shrikant Chohan, Head of Equity Research at Kotak Securities.

Additionally, Vietnam, South Korea, Europe, and the US have increased tariff barriers against steel imports, indicating a tightening global trade environment.

Preference for Non-Integrated Steel Players

Given the current pricing pressures and global trade developments, brokerages are favoring non-integrated steel producers over integrated players.

Kotak Securities has recommended stocks like Jindal Steel and Power and Jindal Stainless, citing their cost advantages and flexibility in procurement strategies.

Meanwhile, integrated steel producers like Tata Steel, JSW Steel, and SAIL face higher operational costs due to proposed mining taxes in certain states, which could offset the benefits of safeguard duties.

Steelmakers Requested 25% Duty, But Government Settled for 12%

The Indian Steel Association (ISA), which represents major players such as Tata Steel and JSW Steel, had initially lobbied for a 25% safeguard duty.

However, the government only recommended 12%, largely due to pushback from key industries such as automobiles and infrastructure, which depend on affordable steel for cost-effective production.

“The ISA will approach the commerce ministry again to seek a revision of the duty to 25%,” said a person familiar with the matter.

China’s Influence on Global Steel Trade and Possible Dumping Risks

The DGTR’s safeguard duty recommendation comes amid a broader global trade shift, particularly in response to the US government’s steel tariffs under President Donald Trump.

With China facing weak domestic demand, especially in real estate and construction, its steel exports to global markets have surged.

Analysts believe that if China devalues its currency, it could make its exports more competitive, further increasing the risk of cheap steel imports into India.

Uncertainty Remains in the Steel Sector

• Commerce Ministry Approval Pending: Final decision on the 12% safeguard duty is expected soon.
• ISA’s Lobbying Efforts: The steel industry may continue pushing for a higher 25% safeguard duty.
• Global Trade Policies: Developments in US-China trade tensions and other countries’ steel tariffs will impact India’s steel market.
• Market Reactions: Investors will watch how domestic steelmakers adjust their pricing strategies and whether the expected EBITDA boost materializes.

With multiple factors influencing steel prices and profitability, the coming months will be critical in determining whether the safeguard duty effectively supports India’s steel sector.