Metals dip as US to restore tariffs on imports from Brazil, Argentina

Metal stocks such as Jindal Steel, Tata Steel, NMDC, and Vedanta declined in the early mornig trade on the NSE on Tuesday after US President Donald Trump "restored" tariffs on all steel and aluminium products imported from Brazil and Argentina.

In a tweet on Monday, Trump said that Brazil and Argentina had been presiding over a "massive devaluation of their currencies", which was not good for the US farmers. READ REPORT HERE

"Therefore, effective immediately, I will restore the tariffs on all Steel & Aluminum that is shipped into the US from those countries... The Federal Reserve should likewise act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies," he said. 

Brazil and Argentina have been presiding over a massive devaluation of their currencies. which is not good for our farmers. Therefore, effective immediately, I will restore the Tariffs on all Steel & Aluminum that is shipped into the U.S. from those countries. The Federal....

— Donald J. Trump (@realDonaldTrump) December 2, 2019
Last year, Washington had imposed tariffs of 25 per cent on steel and 10 per cent on aluminium on national security grounds. The same were, however, granted some exceptions amid outcry abroad and in the US, where many manufacturers rely on foreign metal imports. The US is Brazil's biggest customer for steel and Brazil is the world's 10th biggest exporter of steel, according to the US Department of Commerce.

Individually, NMDC shed 2.7 per cent, followed by Jindal Steel (2.4 per cent), Steel Authority of India Ltd (2.2 per cent), Tata Steel (2.19 per cent), and Vedanta (2 per cent). Besides, shares of JSW Steel, Hindalco, and National Aluminium Company Ltd (Nalco) declined in the range of 1.4 per cent to 2 per cent. Thus far in 2019, Nifty Metal index has underperformed the benchmark Nifty50 index. The former slipped 16.5 per cent till Monday, as against a 11 per cent rise in the latter.

Metal stocks have been under pressure ever since global trade war between the United States and China began. Consequently, steel companies have witnessed contraction in margins, dragged down by lacklustre demand and lower global commodity prices. 

In September quarter, lower commodity prices, fragile demand and slowing volumes throttled the performance of metal sector companies. For steel firms, heavy monsoon, liquidity issues and weakness in automobile sector further led to a slump in demand. All steel companies faced sagging volumes in the quarter, but they expect a recovery in the second half or the October-March period of FY20.

Margins of top steel firms- Tata Steel, JSW Steel, Jindal Steel & Power Ltd (JSPL) and SAIL contracted by Rs 1200-2400 per tonne in Q2. The margin squeeze was the most pronounced for JSW Steel. Ebitda for Tata Steel Europe remained weak at $10 per tonne due to a fall in steel spreads, weak demand and planned summer shutdowns.

Brokerage firm Edelweiss, in a report dated November 14, however, said that stock prices and earnings of steel companies would bottom out in Q3FY20. "Spot raw material (RM) spreads for domestic players have inched up 3 per cent to Rs 20,965/t as a result of uptick in domestic hot rolled coil (HRC) HRC prices and fall in international coking coal prices—down a further $10/t thus far in Q3FY20. If the price hike sustains, we believe earnings of ferrous players are likely to bottom out in Q3FY20 as spreads will become increasingly favourable hereon," it said.

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