Why Tata Steel Share Price is Falling

Editor's note: Tata Steel's share price declined 2.5% intraday on Monday. In fact, shares of the company have come under pressure ever since it undertook the corporate action of splitting its shares.

As the street turned cautious on steel stocks, the company's shares fell. Global steel prices, which soared as a result of the Russia-Ukraine war have been falling, following lower demand for steel domestically.

For the last couple of days, a sharp decline may have attributed to this fall. Lower prices of the steel lead to lower realisation, which impacts profitability.

This impacted the shares of Tata Steel.

Here is how the share of the company has performed so far in 2022.

A similar downward movement was seen in May 2022. Back then, we wrote about the likely reasons for the downfall.

A lot has happened since then. Read on to find out more...

Why Tata Steel Share Price is Under Pressure

Tata Steel share price has been experiencing volatility in 2022. The share price was falling at the beginning of the year.

However, the scenario changed in March 2022 when Tata Steel shares turned around and rose.

But this did not last long. Shares of the steel major again started falling in May.

Today, shares of Tata Steel slumped over 12% and hit a 52-week low of Rs 1,003.

But what caused today's sharp fall? What suddenly changed that pushed down Tata Steel shares?

Read on to find out...

#1 Changes in the steel sector

Over the weekend, on 21 May 2022, Finance Minister Nirmala Sitharaman introduced changes in the customs duties on steel.

The ministry notified export duty on as many as 11 iron and steel intermediaries and lowered import duties on 3 raw materials.

According to the notification, the export duty was increased on one item while ten fresh items are being brought into the tax net.

These changes are brought to ensure the local availability of steel in India.

Thus the domestic prices of steel will fall because exports are discouraged. This will leave an impact on share prices of the steel sector.

Tax rate and share price is inversely proportionate to each other. Hence, when a tax on any commodity is increased, the share price of the producing company is bound to fall.

This happened with the share price of Tata Steel. Owing to the rise in duty announced on Saturday, the share price saw a rapid fall on Monday.

Shares of Tata Steel opened at Rs 1,095.1 today, which is 6% lower compared to its previous closing price.

Within a couple of minutes of market opening, shares of the company extended its losses. It ended the day over 12% lower.

A huge impact of export duty rise is seen on Tata Steels because 15-20% of Tata Steel's sales comes from export of steel.

#2 Correction in steel prices

Update: A substantial correction in the steel prices is due to subdued demand in international market, particularly from China which accounted for 52% of global steel demand. Apart from this Russia-Ukraine war and policy rate hikes by Central banks are also impacting demand across the world.

Due to this muted demand environment, the steel prices have witnessed a steep decline in prices in recent times. The domestic coil prices fell by Rs 700 per ton week-on-week to Rs 55,200 per ton in 2022.

The average price of steel so far is 3% below the average seen in the August.

Further, the government of India levied a 15% duty on the major steel products to improve the availability of alloy in the domestic market. This further hit the company.

How are other metal stocks performing today?

A minor pebble is enough to send a weak cart tumbling down. The cart of metal stocks was already weak.

Note that metal stocks have been under a lot of pressure lately. The metal sector was already facing issues like the economic slowdown of China, change in the demand-supply of steel, etc.

To know more, check out our editorial on why metal stocks are falling .

Meanwhile, chartist Brijesh Bhatia today shared his view on metal stocks and whether the rally in metal stocks is over.

You can read it here: Metals Stocks Start on a Rusty Note. Is the Rally Over?

The cart was already moving with difficulty. But the pebble of export duty sent the steel sector tumbling down.

What the future of Tata Steel looks like...

Despite the adverse situation in the steel sector, the financial statements of Tata Steel paint a bright picture.

In financial year 2021-2022, Tata Steel's sales have increased around 54% YoY compared to the previous year.

For the full financial year 2021-22, Tata Steel reported good earnings. Its net profit rose to Rs 417.5 bn. This is a more than five-fold jump from previous year's net profit of Rs 81.9 bn.

Tata Steel became the Tata group company's most profitable company, surpassing Tata Consultancy Services (TCS) after several years, aided by rising steel prices due to the commodity supercycle. Thus, Tata Steel's share price may be falling due to market circumstances, but its financials are very sound. This indicates a positive sign for long-term investors, making its way in the best steel stocks in India.

Apart from this, Indian producers can capitalize on the opportunities in the export markets against the backdrop of the ongoing energy crisis in Europe.

Tata steel in August announced, will invest more than 65m euros for the hydrogen-based steel manufacturing in the Netherlands. It has inked the pact with three firms Mc Dermott, Danieli and Hatch for the technical preparation of this plant.

However, investors have to be very careful. The markets are constantly changing. These changes have a big impact.

Investors must keep themselves updated with all the changes.

To know more about Tata Steel, check out Tata Steel's financial factsheet and its latest quarterly results.

You can also compare Tata Steel with its peers.

Tata Steel vs SAIL

Tata Steel vs JSW Steel

Tata Steel vs Jindal Stainless

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...