December Price Hikes, Safeguard Duty Set To Support Indian Steel Margins, Says HSBC
The Indian government's three-year safeguard duty on steel imports has catalyzed significant price increases, with domestic HRC prices rising ₹3,200 per tonne in December. HSBC analysis shows domestic prices still trade at meaningful discounts to import parity despite the duty, projecting further increases of ₹1,500-2,000 per tonne in January. The policy provides earnings floor protection for steelmakers during their capex cycles.
*this image is generated using AI for illustrative purposes only.
The Central government has imposed a comprehensive three-year safeguard duty on select steel imports, marking a significant policy shift aimed at protecting domestic steelmakers from cheap foreign competition. The duty structure implements a graduated tariff system with rates of 12% in the first year, 11.5% in the second year, and 11% in the third year. The duty will not apply if imported HRC CIF price exceeds $675 per tonne.
Scope and Coverage of the Safeguard Duty
The safeguard duty applies to all countries except developing nations, though China, Vietnam, and Nepal are excluded from the developing country exemption. Specialty steel products, including stainless steel, remain exempt from the duty structure. HSBC Global Investment Research noted that this addresses key investor concerns about downside risks to earnings for domestic steelmakers, particularly after the provisional duty was set to expire in November 2025.
December Price Momentum and Market Response
Domestic steel prices have already begun firming up significantly. Retail HRC prices surged from ₹45,800 per tonne at end-November to ₹49,000 per tonne in December, as mills implemented two price hikes totalling ₹2,000 per tonne.
| Parameter | November End | December | Change |
|---|---|---|---|
| Retail HRC Price | ₹45,800/tonne | ₹49,000/tonne | +₹3,200/tonne |
| Price Hikes Implemented | - | 2 rounds | ₹2,000/tonne |
Import Parity Analysis and Future Projections
HSBC's analysis of current market dynamics reveals significant pricing opportunities for domestic producers. Based on FOB prices of $470-480 per tonne, the brokerage estimates implied landed prices after safeguard duty implementation.
| Country | Implied Landed Price (₹/tonne) | Domestic Discount Status |
|---|---|---|
| China | ₹57,241 | Meaningful discount remains |
| Japan | ₹53,515 | Meaningful discount remains |
Given this pricing gap, HSBC expects further price hikes of ₹1,500-2,000 per tonne in January, building on December's momentum.
Earnings Impact and Risk Assessment
HSBC emphasized that the safeguard duty effectively removes most earnings downgrade risk for domestic steelmakers, particularly crucial given anticipated weak third-quarter results and a $30 per tonne rise in coking coal prices since September. The policy provides a multi-year earnings floor during a period when most companies are embarking on large capital expenditure cycles.
However, the brokerage noted that meaningful earnings upgrades would require stronger regional price momentum alongside a decline in Chinese steel exports. While recent developments such as export licensing requirements are positive signals, an actual fall in Chinese exports may still take time to materialize.
Market Outlook and Investment Perspective
With a supportive global backdrop for metals, low investor positioning, and regulatory support through safeguard duty, HSBC believes Indian steel stocks could begin catching up with base metal stocks in the coming period. The combination of policy support and price momentum creates favorable conditions for sector re-rating, though sustained improvement depends on broader regional dynamics and Chinese export trends.
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