How Global macroeconomic outlook and decrease in exports taxes will affect Steel Industry?

The government has decreased export taxes on steel and iron ore as of November 19, six months after the levy was put into place. On November 18, the finance ministry made a late-night announcement that certain pig iron and steel products, as well as iron ore pellets, would have "nil" export duties.

Additionally, "nil" export taxes will apply to lumps and fines of iron ore that contain less than 58% iron. For lumps and fines of iron ore with a content of more than 58% iron, the rate of duty will be 30%.

The elimination of export taxes coincides with a period of the predicted decline in global steel consumption and already-significantly lower global prices than domestic ones. The latest World Steel Association (WSA) predictions predicted a 2.2% YoY decline in global steel consumption in CY2022. Global steel consumption is expected to decline by 2.4% in CY2022 and conceivably by 3.5% in CY23 compared to WSA's earlier predictions in April 2022.

WSA anticipates that Chinese steel consumption will decline by 4% in CY2022 and 5% in CY23 among the top ten nations. Additionally, the estimates for the EU (high-margin steel destination) and the far east have been reduced (traditional exporters of steel).

In addition to negative macroeconomic factors amid a high dollar index and high inflationary environment, the world's prices are also significantly lower than they were on May 2022. After a brief respite in the previous week, China HRC prices are down by 30% from May 2022.

Similar to this, the price of HRC exported from countries in the Far East is down 42% YoY in November 2022 compared to May 2022. In this case, India's exports are anticipated to have a significantly smaller margin than they did in May 2022.

On the front of landed cost parity, it is believed that domestic HRC prices are 10-12% higher than imports from countries in the Far East. As a result, no discernible increase in domestic steel prices is anticipated.

Pellet export taxes will be reduced, which will help the DRI-IF market. Following the removal of the pellet export duty on November 19, pellet producers in Central and Eastern India increased their prices by Rs. 1,000–1,500/te (10–12%). The current pellet price (CNF China) is US$126/te, which is still more expensive than domestic pellet prices by Rs. 2,000/te.

Following pellets, the index for billets increased by over 10% to Rs. 44,000/te as a result of the elimination of export taxes. Additionally, spot billet trade volumes increased twice since November 2018.

For DRI-IF participants like Shyam Metalics and pellet exporters like Godwari Power & Ispar and Jindal SAW, it is anticipated to be advantageous.

The Odisha Iron Ore Fines index stabilized after falling to a two-month low in response to the increase in pellet offers. Miners in Odisha are thinking about raising prices by Rs. 500–700 per te in the upcoming week. After lowering its price by US$300/te last week for both fines and lumps to match the offers made by miners based in Odisha, NMDC is anticipated to follow suit.

The main winner will be Jindal Stainless because it can increase its export volume. Due to the export duty, the company only exported 5% of its volume in Q2FY23 as opposed to the usual 25–30%. The export environment is thought to be more favorable for Jindal Stainless than for its carbon steel competitors because European competitors have reduced production as a result of the ongoing energy crisis.

Since the majority of the company's exports to Europe are 300-series products with high margins, this presents an opportunity for the company to both scale up its exports and increase margins.