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Safeguard Duty on Imports Good for Steel Sector: Piyush Jain

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Safeguard Duty on Imports Good for Steel Sector: Piyush Jain

Morningstar India's Piyush Jain says the stock prices are already reflecting the good news


Piyush Jain of Morningstar India spoke to NDTV on the government proposing to impose a higher safeguard duty at 20 percent on hot rolled coil (HRC) steel, and said it is good for the sector.

Here are edited excerpts from the interview:

Impact on Industry: I think it's good for the sector overall. If you see in the context that the steel sector was actually facing the rising imports situation from Korea, China, Russia, Japan and I think the safeguard duty is primarily actually to protect the industry in a very subdued domestic demand situation.

So I think in that context it's good, what's the quantum I think that will be yet to be seen but one thing is quite sure, at present when steel prices are quite low in the international market and you don't have that much strong demand in the domestic market, this is going to be good news for the steel sector.

Price Impact: But let's remember, primarily where the stock prices are right now, we are seeing that the industrial recovery has been quite subdued, so this is primarily addressing the problem of steel sector that they don't have to cut prices to compete with the foreign imports.
It is basically going to protect them but it is not a major turnaround or something which is going to boost their margins a lot.

Stock Prices: I think the stock prices are already telling us that this is slightly better news because probably the worst has been avoided at present so they would not need to cut prices, which means that the margin deterioration has been avoided at present. So the stock prices are seeing a relief rally, we might see some more bounceback but I think that should be done because overall the fundamental story at present is we are living in quite subdued demand and subdued pricing environment, so near-term some bounceback but then after that I don't see any outperformance which is going to last for a long time.

Commodity Sector Outlook: The bounceback is because if we primarily see the commodity market, the commodity prices had gone below the floor and that normally happens in both the cycles up or down, so at present the down cycle because of sentiments, speculative short positions had actually breached the floor according to us and while price start stabilising and over the last 7 days, we had some news of probable Chinese stimulus, so those sort of data they slightly perk up the prices and  even the stock prices they were quite battered down, so they have seen some relief rally.

So probably some relief rally was warranted, we have seen that but I don't see any fundamental outperformance in the near term, the next 2-3 quarters should remain challenging and the bounceback was warranted and we have seen that so don't expect any major outperformance from here.


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