Why Steel Stocks Are Rising

The Indian steel industry has witnessed remarkable growth in recent months, primarily fueled by the country's burgeoning economy and the rapid expansion of its infrastructure.

This sector has played a pivotal role in bolstering the nation's economic landscape, making substantial contributions to its GDP, and offering gainful employment opportunities to millions of individuals.

Out of the blue on Monday this week, shares of Vallabh Steels, Prakash Industries, Jindal Stainless, Steel Authority of India, and Steel Exchange of India surged by an impressive 11%.

Here's what propelled these steel stocks to remarkable gains.

#1 Anti-Dumping Duty

Indian steel stocks gained traction and rallied on 11 September 2023 due to the imposition of a five-year anti-dumping duty on certain Chinese steel products.

This move was prompted by a substantial 62% surge in steel imports from China to India between April and July, compared to the corresponding period in the previous year.

China's steel exports to India reached 0.6 million metric tons, securing its position as the leading steel exporter to India, surpassing South Korea.

During this timeframe, India imported a significant 2 million metric tons of finished steel, marking the highest level since 2020 and reflecting a 23% increase from the previous year.

The decision to impose anti-dumping duties is in direct response to concerns raised by the domestic steel industry regarding potential unfair trade practices by Chinese sellers.

Notably, China primarily exports cold-rolled coils or sheets to the Indian market.

Furthermore, on the global stage, India's actions are part of a broader trend. The United States and the European Union have been engaged in discussions and negotiations to formulate new trade tariffs aimed at addressing excess steel exports.

#2 Increasing demand

India's rapid economic growth and ambitious infrastructure development plans have led to a surge in demand for steel.

The country is undergoing extensive infrastructure projects, including highways, airports, ports, and railways, all of which require substantial quantities of steel.

As India aims to become a US$ 5 trillion (tn) economy by 2030, the steel industry is poised to play a pivotal role in supporting this growth.

Projections by the World Steel Association estimate a growth rate of about 6.7% in the steel industry in 2023.

The Indian Steel Association predicts a 7.5% increase in steel consumption for the fiscal year, driven by robust demand from the construction, railways, and capital goods sectors.

This increasing demand for steel translates into higher revenues and profitability for steel companies, thereby boosting investor confidence.

#3 Favorable government policies

The Indian government has implemented a series of policies and initiatives aimed at fostering the growth and development of the metal industry, including the steel sector.

The National Steel Policy is a prime example, designed to increase domestic steel production, promote value addition, and enhance steel consumption within India.

Additionally, the government has reduced metal import duties, providing a competitive advantage to domestic metal producers.

These supportive policies create a conducive environment for metal companies to expand their operations, invest in new technologies, and increase their market share.

This has further created positive sentiment in the market.

How the top Indian steel stocks have performed recently

Have a look at the table below to see the performance of steel stocks over different time frames.

Performance of Steel Stocks

Company Name	Closing as on 12-09-2023 (% change)	1 Month performance	YTD performance
Steel Exchange India	10.5	-14	-22
Vallabh Steels	4.9	44.1	33.7
Prakash Industries	4.6	33.4	108
Jindal Stainless	4	26.7	102
Tata Steel	1.2	9.1	8

Source: Equitymaster

To conclude

Going forward, the Indian steel industry is expected to add 22 million tonnes of capacity over the next two years, and this may still leave room for imports.

Further, the government is planning to announce the second leg of the PLI scheme (PLI 2.0), with a focus on import substitution and taking care of the requirements of the Indian Railways.

This shows that the Indian steel industry is poised for growth.

Nevertheless, it's important to acknowledge certain challenges. The steel sector is inherently slow-growing and serves diverse end applications, ranging from construction and residential projects, automobiles, and consumer durable goods.

Consequently, it operates in cycles closely tied to economic upswings and contractions.

Therefore, potential investors should exercise due diligence by conducting thorough research and analysis before considering investments in steel stocks to navigate the cyclical nature of the sector effectively.

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