Morgan Stanley has called the government’s move to impose a 12% safeguard duty on non-alloy and alloy flat steel products a positive step that clears months of regulatory uncertainty. The duty, effective for 200 days starting today, is applicable on an ad valorem basis. However, threshold prices have also been introduced, above which the duty will not be levied.
According to Morgan Stanley, this development removes a significant overhang for the steel sector and may result in some positive near-term stock price action for domestic steelmakers. However, the brokerage cautioned investors against assuming a structural rally.
Domestic hot rolled coil (HRC) prices are currently trading at an 18% premium over import parity levels, and even after the safeguard duty, they remain at a 5% premium. This, the brokerage notes, leaves no scope for further price hikes in domestic steel.
Morgan Stanley suggests that the short-term gains could be used as an opportunity to trim positions in steel names, rather than doubling down.
Disclaimer: The above views are of the broker’s and not the author or the publication’s. Please make any and every investment decision after consulting your financial advisor.
