Government glare melts steel

SECTORS IN THE NEWS

With inflation the prime target and steel prices contributing substantially to it, the government is now mulling a lot of measures that may reduce steel prices.

Steel stocks in the F&O segment reacted to the government's likely moves, with Steel Authority of India and Jindal Saw dropping by around 2 per cent each, while their open interest rose 10-15 per cent, indicating a build-up of short positions.

Tata Steel, which is not a member of the export association, witnessed fresh long positions as the stock was up by over 4 per and open interest rose by around 8 per cent.

The government has so far suspended the export subsidy under the Duty Entitlement Pass Book (DEPB) scheme on steel to control inflation and boost domestic supplies.

However, according to a steel analyst at Emkay Research, the likely impact on margins would be neutral for steel companies as other means to obtain similar benefits exist in the form of advance licence.

However, the scrapping of import duty from 5 per cent to nil is likely to impact the operating margins by around 2 per cent says the analyst.

Domestic prices were trading at a discount to landed import prices, but the discount is expected to disappear after the scrapping of import duty.