Re-rating likely for steel stocks as govt imposes three-year safeguard duty, analysts say

The Central government has imposed a three-year safeguard duty on select steel imports, levying a tariff of 12% in the first year, 11.5% in the second and 11% in the third, as it moves to curb the inflow of cheap steel, particularly from China.

The duty will apply to shipments from countries such as China, Vietnam and Nepal, while imports from certain developing nations have been excluded. Specialty steel products, including stainless steel, are also exempt from the levy.

Brokerages believe the move provides medium term earnings support to domestic steelmakers. HSBC said the long-awaited safeguard duty has finally come through and follows sharp domestic price hikes of around ₹2,000 per tonne seen in December. The brokerage expects further price increases of ₹1,500 to ₹2,000 per tonne in January.

According to HSBC, the duty improves earnings visibility for Indian steel companies over the next three years and could lead to a sector re rating, although meaningful earnings upgrades would depend on a sustained reduction in Chinese exports.

Morgan Stanley said the bull case is now in play for its steel coverage universe.

The foreign brokerage expects domestic hot rolled coil prices to rise by about 10% over the next couple of months. After recent price hikes, domestic HRC prices are currently at a 3% premium to import parity, but remain at a 9% discount once the safeguard duty is factored in.

Morgan Stanley said JSW Steel and SAIL appear best positioned to benefit, followed by Tata Steel and Jindal Steel.

Citi struck a more cautious note, saying steel prices are likely to rise following the imposition of the duty, given the current 7% to 8% discount to import parity.

However, the brokerage remains uncertain whether price hikes will fully bridge the gap, citing lumpy capacity additions and a challenging global steel market.

Citi added that steel stocks could remain rangebound in the near term, pending clarity on steel prices, third quarter earnings and leverage trends.

UBS pointed out potential spillover effects on downstream sectors, citing that higher steel prices could add to cost pressures for auto companies, especially at a time when precious metal prices are already elevated.

The brokerage expects companies to provide more clarity on pricing and margin impact during Q3FY26 earnings calls.

UBS estimates steel accounts for around 20% of net sales for commercial vehicle makers, about 10% for passenger car manufacturers and roughly 5% to 7% for two-wheeler companies.