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Budget 2008-09: Steel

Government�s increased emphasis on infrastructure coupled with the strong demand from housing and automobile sectors will ensure that the steel consumption reaches a few hundred million tonnes a few decades from now. Infact, if we are to bridge the gap between the domestic per capita consumption of 39 kgs and global average of 150 kgs, then demand will have to grow by atleast 10% to achieve the target by the year 2020. Further, with the supply not in a position to be able to catch up with the demand atleast until few years from now, we could see the continuation of the current robust steel cycle in the medium term. Availability of iron ore, however, may come under threat if the government continues to permit indiscriminate exports of the same. Read more

Budget Measures

Steel melting scrap will be exempt from customs duty
Excise duty reduction in select segments of automobile manufacturing
Continuation of power sector reforms
Coal regulator to be appointed
Dividend tax paid by parent company allowed to be set off against the same paid by its subsidiary

Budget Impact

Reduction in customs duty on scrap will help steel manufacturers that use the electric arc furnace route for steel manufacturing lower their costs. On the other hand, it will be a negative for manufacturers that use the blast furnace route.
If auto manufacturers pass on the reduced excise benefits in the form of lower prices, it will help spur demand for automobiles, which in turn will drive steel demand
Increased investment in the power sector will also help boost demand for steel
The proposed coal regulator will help ease the process of allocating coal blocks, a key raw material in the steel manufacturing process

Company Impact

Reduction in excise duties on automobiles will help companies that supply steel to auto makers. Key beneficiary would be Tata Steel
Players that supply steel to the power equipment companies like SAIL and JSW Steel will benefit from increased investments in the power sector
Better access to coal mines will be a positive for all the players that do not have their own captive mines

Industry Wishlist

FICCI's wishlist
Ad valorem duty to be imposed on exports of iron ore from the country
Removal of customs duty on scrap, iron ore as well as metcoke
Reduction of customs duty on zinc as it is the key raw material for production of galvanized sheets and also used majorly for irrigation and water supply related pipes.

Budget over the years

Budget 2005-06 Budget 2006-07 Budget 2007-08

Duty on coking coal with high ash content reduced from 15% to 5%.
Duty on primary and secondary metals reduced from 15% to 10%.
Customs duty reduced from 20% to 15% on ferro alloys, stainless steel and other alloy steel, excluding seconds and defectives.
The budget was silent on the restoration of the duty entitlement pass book (DEPB) scheme applicable to steel exporters.
A surcharge of 2% on account of education cess will be imposed on corporate tax.

Customs duty on ferro alloys, stainless steel and other alloy steel has been reduced from 10% to 7.5%

Duty on coking coal fully exempted.
The customs duty on primary steel and ferro-alloys stainless steel has been reduced from 7.5% to 5 %.
The duty on seconds and defectives of steel reduced from 20% to 10%.
Export duty has been imposed on iron ores and concentrates at Rs 300 per tonne and on chrome ore and concentrates at Rs 2,000 per tonne.
Dividend distribution tax to be hiked from 12.5% to 15%.

[Read more on Budget 2005-06] [Read more on Budget 2006-07] [Read more on Budget 2007-08]

Key Positives

Lustrous demand ahead: Amongst all the metals, steel arguably has the highest co-relation with a country GDP growth. Thus, if we expect India�s GDP to grow in the region of 7% to 8% in the foreseeable future, then the consumption of steel has to increase at a proportionate rate. As per industry reports, between 2003 and 2015, the demand for steel is expected to triple, translating into a healthy CAGR in the region of 10%.

India advantage: Indian steel producers are one of the lowest cost producers in the world, which provides them with a hedge against fall in prices. Further, relatively efficient and vertically integrated companies like Tata Steel are likely to be in a better position to weather any steel downturn.

Improved financial health: The robust steel cycle that started in 2003 has enabled a lot of domestic companies to pare significant amounts of debt and make their balance sheet stronger. Infact, even a lot of new capacities that are being planned will have a healthy mix of debt and equity, thus enabling these companies to weather any downturn in a much better way than managed in the past.
Global outlook: Be it acquisition of downstream technology or enhance raw material security, Indian steel companies have started looking outward for augmenting their growth plans, thus highlighting their commitment towards the downstream sectors, which otherwise will have to depend on imports as well as their shareholders. We believe the sector should see many more deals along the lines of Tata Steel�s acquisition of Corus and Jindal Steel and Power�s acquisition of iron ore mines in Bolivia.

Key Negatives

Iron ore availability: Export of iron ore continues unabated from the Indian shores under the misconception that we have abundant reserves. But nothing could be further from the truth. Iron ore availability in India on a per capita basis remains among the lowest in the world and thus if exports are not stopped, we might lose the edge that we have in terms of being self-sufficient in iron ore.

Capacity constraints: It is indeed ironical that despite being among the lowest cost producers of steel in the world, India has to export its iron ore and at the same time, become a net importer of steel in recent times. This is because major domestic steel producers are facing capacity constraints and new capacities are not coming up fast enough. Unless capacities come on stream quickly, some of the benefits of robust growth in the industry might be lost.

Budget Impact: Steel Sector Analysis for 2007-08 | Steel Sector Analysis for 2009

Latest: Performance Of Steel Stocks | Steel Sector Report

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Sector Performance

COMPANY PRICE (Rs)

ABC GAS 56.7
(-5.0%)

ADHUNIK INDUSTRIES 38.9
(-0.3%)

AEROFLEX INDUSTRIES 145.4
(1.5%)

AERPACE INDUSTRIES 15.0
(-2.0%)

ANKIT METAL 4.4
(5.0%)

APL APOLLO TUBES 1,567.6
(1.2%)

ASHIANA ISP. 44.6
(-2.4%)

AURO IMPEX 89.4
(2.2%)

BALASORE ALLOYS 6.3
(0.2%)

BANSAL ROOFING PRODUCTS 85.3
(1.4%)

BEEKAY STEEL IND. 643.7
(1.6%)

BHARAT WIRE ROPES 301.8
(-1.2%)

BIHAR SPONGE 14.4
(-2.0%)

BINANI INDUSTRIES 15.1
(-0.3%)

BLOOM INDUS. 23.9
(-0.4%)

BMW INDUSTRIES 60.4
(-1.3%)

BOMBAY WIRE ROPES 54.1
(2.0%)

CAPTAIN TECHNOCAST 204.5
(10.0%)

CHAMAN METALLICS LTD. 87.3
(5.0%)

CHENNAI FERROUS IND. 114.3
(0.6%)

COSMIC CRF 1,047.0
(-5.0%)

CREATIVE CASTINGS 755.0
(0.0%)

CRIMSON METAL 8.9
(-4.5%)

CUBEX TUBING 121.5
(5.0%)

D P WIRES 529.7
(-0.9%)

DALMIA REFRACTORIES LTD. 0.0
(0.0%)

DE NEERS TOOLS 210.0
(-2.3%)

DEEM ROLL-TECH LTD. 112.5
(2.7%)

DEEPTI ALLOY STEEL 37.1
(0.0%)

DHATRE UDYOG 23.4
(-5.0%)

DP WIRES 529.7
(-0.9%)

EARTHSTAHL & ALLOYS 48.0
(-1.0%)

EAST COAST STEEL 29.3
(5.0%)

ELANGO INDUS 10.7
(-1.8%)

ELECTROSTEEL STEELS 31.1
(-4.9%)

EURO PANEL PRODUCTS 180.1
(-3.2%)

FACOR ALLOYS 8.0
(-0.4%)

GALLANTT METAL 278.6
(5.0%)

GANDHI SPECIAL TUBES 778.5
(2.2%)

GODAWARI POWER 865.7
(-1.9%)

GOODLUCK INDIA 913.9
(-2.5%)

GOPAL IRON & STL. 7.8
(0.3%)

GRAND FOUNDRY 10.5
(0.0%)

GRAVITA INDIA 972.4
(-0.4%)

GUJ.INTRUX 300.9
(6.4%)

GYSCOAL ALLOYS 3.6
(-1.4%)

HARIOM PIPE 615.4
(9.0%)

HEERA ISPAT 8.5
(4.8%)

HI-TECH PIPES 128.8
(1.0%)

HINDUSTAN COPPER 371.4
(-2.0%)

HISAR METAL 186.5
(-0.3%)

IFGL REFRACTORIES 631.6
(0.1%)

INDIAN BRIGHT 143.1
(2.0%)

INDIAN METALS 690.9
(1.7%)

INDSIL HYDROPOWER 52.1
(0.6%)

INDUCTO STEEL 64.2
(0.5%)

INVESTMENT & PREC. 596.6
(-2.7%)

ISMT 102.7
(1.6%)

JAI BALAJI INDUS 997.2
(0.2%)

JAI CORP 321.1
(-0.9%)

JAINAM FERRO ALLOYS (I) LTD. 138.5
(-2.5%)

JAYASWAL NECO 50.3
(0.5%)

JINDAL SAW 496.5
(0.9%)

JINDAL STAINLESS 724.7
(1.8%)

JINDAL STAINLESS (HISAR) 560.8
(3.6%)

JINDAL STEEL & POWER 909.8
(-0.9%)

JSW STEEL 851.3
(-0.4%)

KACHCHH MINERALS 37.0
(1.8%)

KALYANI CAST TECH LTD. 443.5
(1.3%)

KALYANI FORGE 432.5
(-1.8%)

KALYANI STEELS 868.1
(0.9%)

KAMDHENU ISPAT 535.7
(2.2%)

KANISHK STEEL 34.4
(5.0%)

KIC METALLICS 52.4
(-1.4%)

KIRL.FERROUS 602.1
(1.1%)

KRIDHAN INFRA 4.4
(-3.1%)

LESHA STEELS 15.7
(-1.9%)

LGB FORGE 10.3
(-0.2%)

LLOYDS METALS 716.1
(-2.1%)

M.M.FORGINGS 1,053.3
(1.5%)

MAGNA ELECTR 486.0
(-1.2%)

MAHAMAYA STEEL 110.0
(4.7%)

MAHARASHTRA SEAMLESS 879.4
(-0.1%)

MAIDEN FORGINGS LTD. 106.6
(1.4%)

MAITHAN ALLOYS 1,153.4
(0.4%)

MANAKSIA STEELS 56.3
(-2.0%)

MANGALAM WORLDWIDE LTD. 167.0
(5.6%)

MARATHWADA REFRACT 383.0
(-0.8%)

METAL COATING 85.8
(7.0%)

METALYST FORGINGS 4.7
(4.2%)

MEWAT ZINC 164.5
(5.0%)

MFS INTERCORP 11.4
(5.0%)

MISHRA DHATU NIGAM 436.4
(4.6%)

MODERN STEEL 21.4
(1.0%)

MONNET IND. 26.0
(-2.3%)

MORGANITE CRUC 1,381.0
(-0.7%)

MSP STEEL & POWER 27.6
(1.4%)

MUKAND 166.9
(-0.7%)

MUKAT PIPES 14.7
(4.0%)

N.D. METAL 109.3
(0.0%)

NALWA SONS INV 3,610.3
(-0.8%)

NANAVATI VENTURES 50.5
(0.1%)

NATIONAL FITTINGS 130.8
(-3.2%)

NELCAST. 152.3
(-0.1%)

NILACHAL REFRACT. 51.5
(1.3%)

NILE. 1,398.3
(0.8%)

NMDC STEEL 65.3
(2.4%)

NOVA IRON & STEEL 28.1
(2.0%)

NUPUR RECYCLERS 83.3
(2.2%)

OM INFRA 144.7
(5.8%)

ORIENT ABRASIVES 51.0
(2.1%)

OWAIS METAL & MINERAL PROCESSING LTD. 673.4
(5.0%)

P.M. TELELINNKS 6.2
(-2.5%)

PACT INDUSTRIES 1.4
(4.6%)

PENNAR INDUSTRIES 140.3
(0.8%)

POCL ENTERPRISES 307.9
(-2.0%)

POKARNA 469.0
(-1.1%)

PRADHIN 45.8
(0.0%)

PRAKASH STEELAGE 8.0
(-2.0%)

QUALITY FOILS (INDIA) LTD. 118.0
(-0.8%)

RAASI REFRACTORIES 49.7
(5.0%)

RAJDARSHAN 47.1
(-5.0%)

RAJRATAN GLOBAL WIRE 649.8
(-2.1%)

RAM RAT.WIRE 342.2
(-1.7%)

RAMA STEEL TUBES 13.6
(6.1%)

RATHI BARS 39.5
(3.9%)

RATHI STEEL 62.4
(2.0%)

RATNAMANI METALS 2,879.1
(-0.5%)

RATNAVEER PRECISION ENGINEERING LTD. 131.6
(2.3%)

REMI EDELSTAHL TUBULARS 98.0
(-5.3%)

RHETAN TMT 9.8
(3.4%)

RHI MAGNESITA 653.9
(-0.7%)

RIDDHI STEEL & TUBE 38.0
(7.0%)

RUCHI STRIPS 6.7
(0.0%)

RUDRA GLOBAL 41.9
(3.3%)

SAIL 152.3
(2.7%)

SAL STEEL 18.7
(1.0%)

SARDA ENERGY & MINERALS 224.3
(-1.1%)

SARTHAK METALS 231.0
(1.1%)

SH.STEEL WIR 38.5
(0.7%)

SHAH ALLOYS 65.0
(1.9%)

SHALIMAR WIRE 23.9
(3.5%)

SHARDA ISPAT 297.0
(-0.6%)

SHARP CHUCKS & MACHINES LTD. 93.9
(-3.9%)

SHIV.BIMETAL 578.9
(0.6%)

SHRI BAJRANG ALLOYS 298.2
(6.1%)

SHYAM METALICS AND ENERGY 610.2
(0.3%)

SIMPLEX CASTINGS 186.7
(5.0%)

SP REFRACTORIES LTD. 158.4
(3.8%)

SRU STEELS 10.3
(-1.3%)

STEEL EXCHANGE 14.1
(0.1%)

STEEL STRIPS INFRA 35.9
(1.5%)

STEELCAST 660.0
(1.1%)

SUNFLAG IRON & STEEL 208.0
(-1.4%)

SURAJ PRODUCTS 578.5
(5.0%)

SURAJ STAINLESS 292.4
(-0.1%)

SURANI STEEL TUBES 410.7
(-3.3%)

SURYA ROSHNI 559.9
(-0.2%)

SWASTIK PIPES LTD. 78.0
(-0.1%)

T.N.STEEL TU 11.9
(-4.7%)

TATA METALIK 1,090.2
(3.0%)

TATA STEEL 161.1
(-0.5%)

TATA STEEL BSL 85.6
(-1.4%)

TATA STEEL LONG PROD 829.5
(0.3%)

TAYO ROLLS 92.4
(-0.8%)

THAAI CASTING LTD. 171.2
(-1.9%)

TINPLATE 430.5
(-0.5%)

TRANSTEEL SEATING TECH 95.2
(-2.3%)

TULSYAN NEC 98.0
(4.1%)

UNI ABEX 2,700.0
(-1.8%)

UNISON METALS 22.0
(1.6%)

USHA MARTIN 361.4
(-2.0%)

VALLABH STEEL 11.8
(-5.0%)

VASWANI INDUSTRIES 37.7
(2.0%)

VBC FERRO 47.4
(-0.3%)

VENUS PIPES & TUBES 2,123.3
(2.1%)

VIBHOR STEEL TUBES LTD. 293.7
(-0.6%)

VISA STEEL 22.0
(-3.5%)

WELCAST 1,607.0
(1.0%)

WELSPUN SPECIALTY 37.1
(-0.9%)