Steel stocks tumble, OMC mixed after duty cut

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MUMBAI: Stocks of iron and steel producers slumped on Monday, while those of petroleum marketing companies (WTOs) sold following the government’s decision on Saturday to increase export duties on some products steel and iron pellets and to reduce levies on petroleum products. The move also led to speculation in the bond market over whether it would add to the already high central government borrowing. Based on the bond market’s initial reaction, however, it appears traders are divided on this front.
The decision to increase or introduce export duties on certain steel products was taken to help domestic users of these products and curb inflation. But most analysts see the development as negative for shares of iron and steel producers. The reduction in taxes on petrol and diesel should also tame inflation without impacting the receipts of the WTO. Since MOCs are unlikely to immediately raise gasoline and diesel prices, under-recoveries would continue, impacting their profitability, analysts said.
Among steelmakers, Jindal Steel is down more than 17%, while JSW Steel is down just over 13%, Tata Steel 12.5% ​​and SAIL 11%. As a result, the BSE metals index lost 8.3% to close at a more than year-old low. As for oil companies, IOCL, which has a refining advantage, closed slightly higher, while HPCL, which has strong marketing leverage, closed down 2.6%.

According to a report by national brokerage firm Edelweiss, the government’s decision to levy duties on carbon/stainless steel exports is likely to significantly erode the sector’s profitability. “This decision strangled the recent rise of the Indian steel industry on the world stage,” the report noted.
A report from Prabhudas Lilladher, another national brokerage, described the situation as a moment of deja vu for the industry. “The event is reminiscent of 2008, when the UPA government imposed export duties to curb inflation as steel prices soared above $1,000 a ton in the wake of massive global liquidity and strong demand.” He admitted that it might not be correct to connect the dots by connecting the past event to the current event.
The reaction to the decision to change fees and levies has been very divided among bondholders. According to a bond fund manager, no immediate improvement in government borrowing is expected since such an increase usually occurs closer to the end of the fiscal year. And with 10 months left in the year, several variables will determine the final borrowing figure, the fund manager said.

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