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Steel: Santa (safeguard duty) comes late, but gifts intact

The Finance Ministry has announced the extension of safeguard duties (SGD) until April 2028, which was widely anticipated after provisional duties expired on November 7, 2025, ending policy uncertainty. SGD raises the price/margin floor for domestic steel producers for three years. The weak export market and near-term supply pressure in the domestic market should keep steel prices in discount to import parity. Domestic HRC prices, after the recent hikes (+9%), are ~6% lower versus the import parity level; we do not expect further sharp hikes in the near term. Prefer JSP/JSTL over TATA/SAIL.

Policy support intact with extension of safeguard duty

The Ministry of Finance has notified the extension of SGD on flat products on December 30, 2025. The decision was widely anticipated after the expiry of provisional duties in November 2025, paving the way for continued government support against imports over the next three years, i.e., April 2025-28. The notified safeguard duties on certain imported flat products are set at 12%/11.5%/11% for FY2026/27/28, in line with DGTR recommendations.

Domestic prices are below import parity levels

Spot domestic HRC prices are up +9% from the recent lows in December 2025 and are now at the same level as September 2025’s exit prices. During August-October 2025, when provisional SGD of 12% was in place, the average discount stood at ~7-8% versus China import parity levels. Spot domestic HRC prices are now ~6% below China’s import parity levels. After the recent uptick in domestic HRC prices, we do not expect further sharp hikes in the near term.

Weak export market, domestic supply additions to keep prices under check

Export opportunities for Indian steel companies continue to face headwinds from record-high exports from China, CBAM implementation from 2026 in Europe and 50% import duty in the US under Section 232. The domestic market is also facing a temporary supply surplus due to the bunching up of capacity additions. JSP has commissioned BOF-2 of 3 mtpa in September 2025 and will add 3 mtpa capacities through BOF-3 by end-FY2026E. AMNS India would complete its ~6 mtpa brownfield expansion in FY2027E. Recent expansions by JSW Steel (Vijayanagar: 5 mtpa) and Tata Steel (KPOII 5: mtpa) are in ramp-up phase. We expect these supply additions to create a near-term supply surplus.

SGD provides policy boost, structural drivers remain intact for steel producers

Improvement in steel prices after the extension of SGD until April 2028 should drive margin expansion from 4QFY26E. However, this will be partially offset by higher coking coal prices, which are +19% higher in the past three months. We remain constructive on steel producers, given structurally growing demand, high utilization with limited capacity additions, a consolidated market and a supportive policy regime. We do not expect a full pass-through of 12% SGD in domestic steel prices on headwinds from the export market and transient supply pressures. JSP and JSTL are our preferred plays within our ferrous coverage.

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