Firstly the reduction in duties sends a clear message that the government is anticipating the strong demand to continue and the rising steel prices could elevate the costs for the end users of the products. Industry experts are estimating 10-12 per cent demand growth for calendar year 2021 against capacity addition of 6 per cent. Budget’s infrastructure focus is only going to boost the demand further and a big positive for the industry.
Most large steel players are operating at above 90 per cent capacity and no major new supply is coming up, except 5 MT by JSW Steel and 3 MT by NMDC and ramping up of which will take at least one-two years. India’s total steel capacity is near 140 MT. This could lead to shortage of domestic steel in the economy, if the high demand continues.
Second, the reduction in duty will lower the steel prices by around Rs 2000 to Rs 51,000. At Rs 51,000, the companies are likely to continue making high profit. Just to give a perspective, steel prices are near all time highs and have gained over 60 per cent from their last year lows. This is because a strong demand in China, world’s largest steel consumer
Further this will only be applicable on steel imported from countries with which India does not have free trade agreements and that constitutes of not more than 20 per cent to 25 per cent of imported steel.
Because of these reasons, the development is not negative for the steel industry, which also reflects in their stock prices.
