Safeguard duty credit positive for Indian steel producers: Moody’s

New Delhi: American ratings agency Moody’s on Thursday said the 20 percent safeguard duty on some categories of steel imports is credit positive for domestic producers and will improve their profitability.

“The imposition of a safeguard duty on certain categories of hot-rolled coil steel imported into the country is credit positive for Indian steel producers because the duty will support domestic steel prices, improve producers’ profitability and their leverage metrics,” Moody’s Investors Service said in a report.

“For our rated entities in India, Tata Steel (Ba1 stable) and JSW Steel (Ba1 stable), the safeguard duty is credit positive as it staves off some of the downward pressure on their realisations caused by cheap imports,” it said

“In the quarter ended June 30, cheaper imports led to an 11 percent decline in realized price per tonne at Tata Steel’s India operations (Tata Steel India) versus a year earlier,” the report added.

Moody’s said that surging imports, especially from China, South Korea and Japan, have resulted in an imbalance between the supply and demand of steel in India and led to a sharp drop in prices.

“Domestic prices fell 25 percent between June 2014 and June 2015 owing to a 57 percent increase in cheaper imports, one third of which came from China,” the report said.

“The safeguard duty and a depreciating rupee will provide a stabilising impact on domestic prices and demand-supply equations although the extent of price increase may vary and fall short of the duty imposed,” it added.

Finance Minister Arun Jaitley on Monday announced the government’s decision to impose a 20 percent safeguard duty on steel imports with immediate effect. The duty, valid for 200 days, has been imposed on hot-rolled flat products of non-alloy and other alloy steel, in coils of a width of 600 mm or more.

The Directorate General of Safeguards had examined the application from major producers – Steel Authority of India, Essar Steel and JSW Steel – and said it found “prima facie increased imports of (certain kinds of steel) have caused or are threatening to cause serious injury to domestic producers”

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