US import tariff likely to have limited impact: Analysts

Metal stocks bore the brunt of US President Donald Trump’s plans of imposing 25 per cent import tariff on steel and 10 per cent on aluminium with the Nifty Metal index slipping 3.3 per cent to 3,831 levels on Monday. By comparison, the Nifty 50 index ended one per cent lower at 10,359 levels. 

Among individual stocks, NMDC, Jindal Steel, Jindal Stainless (Hisar), National Aluminium (NALCO), MOIL, JSW Steel and SAIL slipped 3.5 per cent to 6.2 per cent.

Analysts believe that the impact of the proposed move is likely to be limited for Indian players, as the country exports just around two per cent of US’ annual requirement for steel. The fall seen on Monday, they say, is a knee-jerk reaction to the development last week that came about when the Indian bourses were closed for business.

“India does not have a very big exposure to steel imports to the US. However, there can be some issue in case the major steel producers start dumping steel to other countries. What we saw on Monday at the bourses was an initial reaction to the development. In case prices on the London Metal Exchange (LME) continue to head south, it can then impact the fortunes of steel and aluminium players back home. But, it is too early to forecast that,” says Rikesh Parekh, vice president for institutional, corporate broking at Motilal Oswal Securities.

Analysts at Kotak Institutional Equities estimate steel exports to US by other countries can decline by 9 – 14 million tons due to imposition of higher import duties and ramp-up in its domestic steel mill utilisation rates by 80 – 85 per cent (from 72 per cent at present). However, this will not meaningfully dent the fortunes of the steel and aluminium sectors, they believe.

“The extent of potential steel mill, aluminium smelter restarts in the US will not be meaningful to significantly weaken the outlook on global aluminium and steel, especially given supply-side reforms in China in these industries, said Abhishek Poddar and Samrat Verma of Kotak in a report.

According to reports, US produced 82 million tonnes (mt) of steel in 2017 on capacity of 113 million tonnes per annum (mtpa) and imported 36 million tonnes of the metal. The largest steel exporters to US include Canada, Brazil, South Korea, Mexico and Russia, which together account for close to 60 per cent exports to the US. India exported close to 0.9 million tonnes of steel to the US in 2017, data show.

“We believe the disruption (in steel sector) can be absorbed by improvement in China’s domestic steel mill utilisations and falling exports (dip of 30% in 2017) as it remains a dominant producer, consumer and exporter of steel globally thereby influencing regional steel prices,”.

Adding: “The aluminium production in US can increase to 1.4-1.5 million tonnes from 0.79 million tonnes in 2017 led by smelter restarts. This can reduce aluminium exports to US by 600-700 kilo tonnes (kt). However, we highlight that World ex-China markets are in deficit of 2 million tonnes (2017) and demand is growing at three – four per cent on average (+1 million tonnes per year). The US smelter restarts can only provide partial relief to looming tight global markets.

With Indian steel consumption remaining buoyant – up 7 per cent year-on-year in January 2018 despite a 31 per cent fall in exports – analysts at Emkay remain bullish on the metals space. Jindal Stainless Hisar, Jindal Stainless and Vedanta, Tata Steel and MOIL are their top picks in this segment.

“I don’t think the proposal / development will have any material impact on Indian players per se, unless the produce from major steel exporters to the US floods south-east Asian markets, including India. It can then lead to a price war between the companies. Indian players still are relatively placed because there has been a growth in demand back home. If it continues, the US import tariff development may not turn out to be a big issue for them,” explains Goutam Chakraborty, an analyst tracking the sector at Emkay Global.

 


Country-wise steel exports to the US
Country 2011 (MT) 2017 (MT) 2017 (% of total imports)
Canada 5.5 5.8 16
Brazil 2.8 4.7 13
South Korea 2.6 3.7 10
Mexico 2.6 3.2 9
Russia 1.3 3.1 9
Turkey 0.7 2.2 6
Japan 1.8 1.8 5
Germany 1 1.4 4
Taiwan 0.6 1.3 3
India 0.7 0.9 2
China 1.1 0.8 2
Vietnam 0.1 0.7 2
Netherlands 0.5 0.6 2
Others 4.6 5.8 16
Steel imports to the US 26 35.9 100
* MT = million tonnes      
December year-end figures      
Source: Kotak Institutional Equities report    


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