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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 111.2
(0.0%)

ADHUNIK INDUSTRIES 43.7
(0.5%)

ADITYA ULTRA STEEL LTD. 51.8
(-0.5%)

AEROFLEX INDUSTRIES 181.2
(0.6%)

AERPACE INDUSTRIES 45.7
(2.0%)

ANKIT METAL 3.5
(3.9%)

APL APOLLO TUBES 1,464.8
(-0.5%)

ASHIANA ISP. 46.5
(7.9%)

ASSOCIATED CERAMICS LTD. 288.0
(5.0%)

AURO IMPEX 70.4
(1.3%)

BALASORE ALLOYS 6.3
(0.2%)

BANSAL ROOFING PRODUCTS 93.6
(-2.0%)

BANSAL WIRE INDUSTRIES LTD. 413.2
(0.6%)

BEEKAY STEEL IND. 623.8
(-0.2%)

BHARAT WIRE ROPES 223.1
(4.3%)

BIHAR SPONGE 14.0
(-2.9%)

BINANI INDUSTRIES 15.4
(3.6%)

BLOOM INDUS. 39.4
(-2.0%)

BMW INDUSTRIES 57.1
(0.8%)

BOMBAY WIRE ROPES 61.2
(7.3%)

CAPTAIN TECHNOCAST 390.0
(13.9%)

CHAMAN METALLICS LTD. 113.6
(-0.6%)

CHENNAI FERROUS IND. 132.5
(1.4%)

COSMIC CRF 1,438.8
(3.4%)

CREATIVE CASTINGS 718.1
(-0.6%)

CRIMSON METAL 10.3
(5.0%)

CUBEX TUBING 90.5
(1.1%)

D P WIRES 373.1
(-1.2%)

DALMIA REFRACTORIES LTD. 2,883.0
(-7.4%)

DE NEERS TOOLS 339.2
(4.5%)

DEEM ROLL-TECH LTD. 78.0
(-2.5%)

DEEPTI ALLOY STEEL 58.0
(0.1%)

DHATRE UDYOG 11.9
(-2.7%)

DP WIRES 373.1
(-1.3%)

EARTHSTAHL & ALLOYS 42.2
(0.5%)

EAST COAST STEEL 20.8
(5.0%)

ELANGO INDUS 12.3
(-5.0%)

ELECTROSTEEL STEELS 31.1
(-4.9%)

EURO PANEL PRODUCTS 185.3
(0.5%)

EXCELLENT WIRES AND PACKAGING LTD. 67.0
(0.5%)

FACOR ALLOYS 5.8
(-4.7%)

GALLANTT METAL 319.5
(3.6%)

GANDHI SPECIAL TUBES 765.1
(-1.0%)

GODAWARI POWER 186.0
(-0.6%)

GOODLUCK INDIA 925.4
(-1.6%)

GOPAL IRON & STL. 7.6
(1.3%)

GRAND FOUNDRY 8.6
(0.0%)

GRAVITA INDIA 2,090.6
(-2.8%)

GUJ.INTRUX 475.9
(3.9%)

GUJARAT NATURAL RESOURCES 26.3
(-1.5%)

HARIOM PIPE 566.6
(0.7%)

HEERA ISPAT 8.8
(-1.6%)

HI-TECH PIPES 165.8
(0.5%)

HINDUSTAN COPPER 263.2
(-0.6%)

HINDUSTHAN UDYOG LTD. 3.3
(4.8%)

HISAR METAL 164.6
(-1.4%)

IFGL REFRACTORIES 485.0
(-0.4%)

INDIAN BRIGHT 169.8
(1.0%)

INDIAN METALS 759.2
(-1.8%)

INDSIL HYDROPOWER 51.1
(5.3%)

INDUCTO STEEL 65.0
(-1.5%)

INTERARCH BUILDING PRODUCTS LTD. 1,543.1
(-0.2%)

INVESTMENT & PREC. 818.0
(2.1%)

ISMT 120.2
(-5.6%)

JAI BALAJI INDUS 922.9
(1.3%)

JAI CORP 297.0
(-0.2%)

JAINAM FERRO ALLOYS (I) LTD. 153.9
(7.5%)

JAYASWAL NECO 38.5
(-4.3%)

JINDAL SAW 300.3
(-1.1%)

JINDAL STAINLESS 686.5
(-0.4%)

JINDAL STAINLESS (HISAR) 560.8
(3.6%)

JINDAL STEEL & POWER 865.6
(-2.3%)

JSW STEEL 947.7
(-0.2%)

KACHCHH MINERALS 28.4
(4.2%)

KALANA ISPAT LTD. 35.1
(-2.2%)

KALYANI CAST TECH LTD. 472.7
(-1.7%)

KALYANI FORGE 558.3
(5.0%)

KALYANI STEELS 767.4
(1.8%)

KAMDHENU ISPAT 478.8
(-1.5%)

KANISHK STEEL 35.0
(1.7%)

KIC METALLICS 42.5
(-0.8%)

KIRL.FERROUS 595.4
(0.3%)

KRIDHAN INFRA 4.2
(-0.2%)

LGB FORGE 10.0
(-3.0%)

LLOYDS METALS 949.5
(2.6%)

M.M.FORGINGS 469.5
(4.3%)

MAGNA ELECTR 994.3
(4.0%)

MAHAMAYA STEEL 230.0
(2.8%)

MAHARASHTRA SEAMLESS 610.0
(-0.0%)

MAIDEN FORGINGS LTD. 78.5
(-0.6%)

MAITHAN ALLOYS 1,073.1
(-2.0%)

MANAKSIA STEELS 61.7
(-0.8%)

MANGALAM WORLDWIDE LTD. 161.5
(0.9%)

MARATHWADA REFRACT 578.0
(1.2%)

METAL COATING 82.7
(-2.5%)

METALYST FORGINGS 4.1
(-4.9%)

MEWAT ZINC 143.3
(4.9%)

MFS INTERCORP 19.7
(-2.0%)

MISHRA DHATU NIGAM 318.5
(-0.1%)

MODERN STEEL 19.7
(-0.8%)

MONNET IND. 16.4
(5.0%)

MORGANITE CRUC 1,714.9
(0.8%)

MSP STEEL & POWER 41.8
(0.9%)

MUKAND 132.4
(1.7%)

MUKAT PIPES 21.3
(0.2%)

N.D. METAL 102.0
(0.0%)

NALWA SONS INV 9,390.8
(0.2%)

NANAVATI VENTURES 44.5
(2.0%)

NATIONAL FITTINGS 132.5
(3.8%)

NELCAST. 112.4
(3.6%)

NILACHAL REFRACT. 41.3
(-3.6%)

NILE. 2,075.0
(0.0%)

NMDC STEEL 44.0
(-0.0%)

NOVA IRON & STEEL 18.3
(3.3%)

NUPUR RECYCLERS 106.9
(3.0%)

OM INFRA 138.2
(2.2%)

ORIENT CERATECH 42.7
(1.3%)

OWAIS METAL & MINERAL PROCESSING LTD. 1,241.6
(7.0%)

P.M. TELELINNKS 5.3
(-3.1%)

PACT INDUSTRIES 1.4
(4.6%)

PENNAR INDUSTRIES 181.3
(-0.8%)

POCL ENTERPRISES 187.9
(2.0%)

POKARNA 1,034.1
(-2.1%)

PRADHIN 29.2
(0.7%)

PRAKASH STEELAGE 8.1
(1.6%)

QUALITY FOILS (INDIA) LTD. 90.0
(-1.1%)

RAASI REFRACTORIES 19.6
(-4.9%)

RAJDARSHAN 47.7
(2.5%)

RAJRATAN GLOBAL WIRE 511.2
(0.7%)

RAM RAT.WIRE 594.1
(2.6%)

RAMA STEEL TUBES 12.3
(1.6%)

RATHI BARS 41.8
(-1.0%)

RATHI STEEL 44.5
(-0.2%)

RATNAMANI METALS 3,405.7
(-1.4%)

RATNAVEER PRECISION ENGINEERING LTD. 241.2
(4.2%)

REFRACTORY SHAPES LTD. 113.5
(-2.0%)

REMI EDELSTAHL TUBULARS 93.8
(1.4%)

RHETAN TMT 18.9
(1.8%)

RHI MAGNESITA 517.4
(-0.3%)

RIDDHI STEEL & TUBE 128.5
(-1.9%)

RUCHI STRIPS 35.5
(2.0%)

RUDRA GLOBAL 45.3
(0.7%)

SAIL 111.4
(-1.3%)

SAL STEEL 25.2
(-0.8%)

SARDA ENERGY & MINERALS 408.6
(-3.5%)

SARTHAK METALS 155.6
(6.2%)

SH.STEEL WIR 41.8
(7.7%)

SHAH ALLOYS 70.4
(5.0%)

SHAH METACORP 4.3
(-1.8%)

SHALIMAR WIRE 24.5
(4.3%)

SHARDA ISPAT 360.6
(-5.0%)

SHARP CHUCKS & MACHINES LTD. 131.7
(-0.3%)

SHIV.BIMETAL 581.9
(-3.2%)

SHRI BAJRANG ALLOYS 199.8
(1.9%)

SHYAM METALICS AND ENERGY 823.9
(1.9%)

SIMPLEX CASTINGS 326.6
(-0.1%)

SP REFRACTORIES LTD. 172.9
(-2.0%)

SRU STEELS 7.4
(1.5%)

STEEL EXCHANGE 10.3
(0.6%)

STEEL STRIPS INFRA 32.2
(-0.8%)

STEELCAST 749.9
(1.3%)

SUNFLAG IRON & STEEL 197.6
(0.3%)

SURAJ PRODUCTS 490.0
(-2.6%)

SURAJ STAINLESS 449.0
(2.8%)

SURANI STEEL TUBES 145.2
(-20.0%)

SURYA ROSHNI 565.7
(2.1%)

SWASTIK PIPES LTD. 56.1
(-0.4%)

T.N.STEEL TU 21.7
(5.0%)

TATA METALIK 1,090.2
(3.0%)

TATA STEEL 139.5
(-1.3%)

TATA STEEL BSL 85.6
(-1.4%)

TATA STEEL LONG PROD 829.5
(0.3%)

TAYO ROLLS 86.8
(1.0%)

THAAI CASTING LTD. 147.3
(1.7%)

TINPLATE 430.5
(-0.5%)

TRANSTEEL SEATING TECH 95.2
(-2.3%)

TULSYAN NEC 76.2
(-1.4%)

UNI ABEX 3,012.1
(0.1%)

UNISON METALS 23.0
(0.0%)

USHA MARTIN 394.2
(2.6%)

VALLABH STEEL 10.8
(-4.9%)

VASWANI INDUSTRIES 49.1
(-0.1%)

VBC FERRO 40.4
(1.0%)

VENUS PIPES & TUBES 1,613.9
(0.3%)

VIBHOR STEEL TUBES LTD. 209.5
(-0.6%)

VISA STEEL 36.0
(4.7%)

VRAJ IRON & STEEL LTD. 220.4
(3.0%)

WELCAST 1,365.0
(0.3%)

WELSPUN SPECIALTY 43.5
(0.4%)

WESTERN MINISTIL LTD. 0.4
(4.8%)