Steel cos' stocks get a duty boost amid dull expectations for Q3
Despite the duty moat, analysts expect a sequential decline in Ebitda per tonne due to rising coking coal costs, increased domestic supply from new capacities, and a seasonal dip in demand.
The share prices of domestic steel producers have risen by 4-6% since 30 December after the finance ministry notified the extension of safeguard duty imposition on steel imports, as per the recommendation of the director general of trade remedies. The big gainers here are JSW Steel Ltd and Jindal Steel Ltd (formerly Jindal Steel & Power Ltd), which increased 6%.
The duty would be levied for three years on most grades of flat steel products at 12% for the first year, 11.5% for the second and 11% for the third year. Recall that the ministry had notified an interim order imposing the duty in April to stop the surge in imports, which had lapsed on 7 November. The delay suggests a reluctance on the part of the ministry due to the adverse impact of higher steel prices on consuming industries, particularly small and medium-sized enterprises, which are already facing headwinds due to lower exports.
“With the safeguard enacted, we believe domestic prices may now trade at a premium of minimum 10% to international prices (at spot levels, it works out to $60-65 per tonne) for the next two and a half years; thus, enabling domestic steel mills’ margins to surpass their average levels," noted a 31 December ICICI Securities report. Spot prices of flat steel products rose by about 6% in the last week of December, and can see further support with the decision.
The announcement comes as a relief to companies that were bogged down by rising supplies and slower demand growth, even as imports dropped by about 40% after the interim duty took effect. As per a Motilal Oswal Financial Services report, steel consumption during the first two months of the December quarter (Q3FY26) rose by 5.2% year-on-year, compared to a growth of 10.5% in production, with several production facilities coming onstream. Thus, prices of different grades of steel declined by about 3-5% on a sequential basis in Q3 and 2-12% year-on-year.
Surplus supply
Among the new facilities is a three million tonnes per annum (mtpa) plant commissioned by Jindal Steel in September, with another expected to be commissioned by the end of FY26. Besides, JSW Steel and Tata Steel Ltd’s five mtpa facilities are expected to achieve full ramp-up by FY26-end. These facilities may keep the domestic market in surplus unless the producers reduce their capacity utilization to support prices.
The industry is also facing cost pressure with coking coal prices rising by about 9% sequentially. These adverse market conditions are expected to weigh on Q3FY26 results, with companies expected to report a sequential decline of approximately ₹2,000 per tonne in their Ebitda, according to a JM Financial Institutional Securities report.
Having said that, expectations from Q4 are brighter, aided by improved steel prices and the quarter being seasonally the strongest one. Steel companies’ stocks are up in the range of 13-30% over the past year, getting a fillip from the interim safeguard duty. While JSW Steel looks fully priced at an enterprise value of 10 times FY27 estimated Ebitda, Tata Steel, Steel Authority of India Ltd and JSL are trading at 7-8 times their Ebitda, as per Bloomberg. Despite the robust demand outlook, balanced market supply dynamics, and, in turn, the steel price trend would determine the stocks’ trajectory ahead.
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