China tax to benefit Indian steel, stabilise prices.

Mumbai: China has removed its export rebate on certain steel products, which effectively discourages exports from the country.

In a move to arrest the low-grade steel production in the country, the government has withdrawn the 9% export rebate given on products such as hot and cold rolled coils in the flat segment, and long steel, which primarily used in the construction sector.

The rebate stands withdrawn with effect from July 15.

Industry experts and analysts believe this is a positive for Indian steelmakers as the price difference between local and imported steel is currently as much as $100 per tonne (approx Rs 4,620).

Imports from China could slow down and prices could stabilise.

Prasad Baji, Faisal Memon and Manan Tolat of Edelweiss Capital, in a report on June 22, said: “Currently, China exports hot rolled coils at $600 per tonne. Withdrawal of the 9% export rebate would mean $54 per tonne lesser profit for Chinese steel exporters, effectively leaving a very thin or possibly no margin.

This would mean reduced level of Chinese steel exports in the second half of the calendar year 2010.”

The analysts said the news is positive for steelmakers such as Tata Steel and JSW Steel.

However, they believe the news is a negative for iron ore miners like Sesa Goa, as most of Sesa Goa’s ore is exported to China.

“The hidden agenda for this move is that this would lead to strong production cuts in China, reducing raw material prices. Ultimately, the strong pricing power of miners will reduce,” the analysts said.

An official from a domestic steel company, on condition of anonymity, told DNA Money, “There has been a huge surge of steel coming from China in the past two months at an average price of $550 per tonne. This has really impacted our sales and prices are under tremendous pressure. Given the high raw material costs, we cannot afford to sell our steel at such low prices.”

Pinakin Parekh and Neha Manpuria of JP Morgan India, in a report dated June 22, said: “While the removal of export rebates is unlikely to result in a complete reduction of exports, we believe the removal of rebates is likely to reduce the import pressure into India from China.”

However, they believe near-term pressure on Indian steel prices will continue and the companies may have to lower prices, as the gap between domestic and imported steel is close to Rs 5,000 per tonne.

Parekh and Manpuria said, “In terms of stock picks, we would continue to highlight Tata Steel for the aggressive investors and SAIL for more defensive investors.”


Source : DNA India