Mumbai: Steel companies such as Steel Authority of India Ltd (SAIL), JSW Steel Ltd and four other Indian producers who agreed to curtail exports may sustain profit growth because shipments diverted to the domestic market can easily be absorbed, Credit Suisse said.
The companies won’t sign new export contracts to boost local supplies, Indian Steel Alliance, a group of six steel makers, had said on Tuesday. Only 1 million tonne (mt) from 5mt sold abroad may find its way into the country, the brokerage said in a note on Wednesday.
Preventive action: A Jindal Steel unit in Hisar. The Centre may impose a tax on steel-product exports and end the import duty to cool rising prices. (Photo: Rajeev Dabral/ Mint)
Prime Minister Manmohan Singh’s Congress party-led coalition has banned exports of food staples including wheat, joining China, Malaysia and Thailand in a bid to curb inflation that’s at a 10-month high.
The Union government may impose a tax on steel-product exports and end the import duty to cool rising prices, newspapers reported last week.
“By being proactive, the steel industry is likely to have diverted more stringent steps that the government could possibly have taken,” Credit Suisse analysts Neelkanth Mishra and Anubhav Aggarwal said in the note. Steel makers can increase prices once inflation is under control, they said.
Indian steel makers led by SAIL lowered prices in January after the government expressed concern about passing on higher costs. Still, prices have climbed 24% this year, the Press Trust of India reported last week, citing steel minister Ram Vilas Paswan.
Tata Steel Ltd, the world’s sixth biggest producer, is not part of the Indian Steel Alliance. The grouping controls 30mt, or 60%, of India’s capacity, Credit Suisse said.
SAIL, the country’s second biggest producer, swung between gains and losses, rising as much as 2.4% to Rs204.70 in Mumbai trading after falling 2.5% earlier. It eventually closed at Rs200.10. JSW Steel, the third biggest, gained 1.2% to Rs858. And it closed at Rs835.60. Tata Steel jumped 3.8% to close at Rs657.85.
“The volatility is temporary as the export restrictions won’t have much bearing on earnings,” said Niraj Shah, an analyst at Mumbai-based Centrum Broking Pvt. Ltd. He has a “buy” rating on JSW Steel and an “accumulate” on SAIL.
Exports by SAIL are 3% of sales, Credit Suisse said. While overseas sales make up 30% of sales at JSW, only 120,000 tonnes of hot-rolled coil exports will need to be sold locally under the terms agreed yesterday, the brokerage said. JSW can produce 3.8mt annually.
“We will not export products that have a demand in the country,” JSW finance director Seshagiri Rao had said on Tuesday.