Large steel players may face twin blows from export duty, shows CRISIL research | The Financial Express

Large steel players may face twin blows from export duty, shows CRISIL research

Import, Export, Trade for MSMEs: Micro, small, and medium enterprises (MSMEs), with higher exposure to long steel, will grow 5-10 per cent, says CRISIL research.

Large steel players may face twin blows from export duty, shows CRISIL research
The surge in domestic steel prices over the period of January-May led to the imposition of Export duty, says the report.

Import, Export, Trade for MSMEs: The steel industry is likely to face twin blows, after the sharp adjustment in domestic steel prices and following the imposition of export duty by the government. These changes are likely to result in a 2-4 per cent fall in industry revenue in 2022-23 (FY23), according to the report by Business Standard.  

However, CRISIL Research shows that micro, small, and medium enterprises (MSMEs), with higher exposure to long steel, will grow 5-10 per cent. 

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The increase in domestic steel prices over the period of January-May this year led to the imposition of export duty. This in turn led to reduction in the price of flat steel by 25 per cent from its April peak, which accounts for almost 80 per cent of finished steel exports and is dominated by large steel players, as per the report. At the same time, the prices of long steel saw a limited correction. 

“We expect flat-steel prices to correct by over 10 per cent in FY23, even as long-steel prices remain largely resilient,” says the report. 

The report further says that long-steel prices of primary players are 6-8 per cent higher year on year (YoY) for August 2022 and the prices of secondary players’ are even higher owing to the increasing price of thermal coal, a key input for them. The increasing input prices will constrain margins across the board. 

“Integrated players, whose margin was 30 per cent in FY22, will see a margin correction of 400-600 basis points (bps) YoY this fiscal. Secondary players, with margins typically at 9-10 per cent, will see a contraction of 150-200 bps,” suggests the report. 

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Moreover, the report finds that secondary players can expect healthy demand growth from the infra and housing segment and lower dependence on exports. It will cushion the margil fall, driving volume growth for the secondary players. 

The current fiscal is likely to see more demand for long steel (in domestic and international markets) than flat-steel growth, benefitting MSMEs. Moreover, strong demand for pig iron and sponge iron will support segment revenues.

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