Thread by @goindiastocks

#stockstowatch #steel #ironore
Steel, iron ore & iron ore pellet prices are all likely to correct sharply given the imposition of export duties. Export taxes levied are
Steel- 30% from NIL
Iron Ore- 50% from 30%/0%
Iron Ore Pellets- 45% from NIL
Let's calculate the price impact

Global iron ore prices are currently around US$129/t. Based on the current duty of 50% export tax up from 30%, the iron ore prices should fall in India by Rs1500/t. See table below for calculations

Iron Ore Pellet prices in India ex Raipur stands at Rs10300/t. Accounting for increase in export tax to 50% from 0% and also factoring in the cost of making pellets post possible drop in iron ore price. Expect iron ore pellet prices to drop by Rs3500/4000/t to Rs6500-7000/t

Steel prices are at Rs69300/t in India. Post the 15% export tax, we calculate that steel prices in India can drop by Rs15500/t. The benefit of reduction in coking coal and iron ore will be limited to Rs3000/t. Margin reduction by Rs12500/t!

Now remember that Iron ore benefit will not be available to SAIL and Tata Steel as their costs are fixed. Hence, the impact on margins will be even more on these two. Followed by impact on JSW Steel and JSPL.

India exported 20mnt in FY22, almost 15% of prod. Quite likely that large steel cos continue exports despite taxes & try to maintain domestic pricing. In this case, Import parity price will be applicable. Steel price drop will be Rs10000/t and margin reduction to around Rs7500/t.

Below is the last reported margin for various steel companies. And the potential margin post the imposition of export taxes.

Pretty evident that stocks will correct. Only good part is that balance sheets are strong and valuations not so expensive. But don't try to bottom fish, because global steel prices can also fall further given the uncertain macros.