Domestic Steel Prices Collapse To Import Parity Level Threatening Indian Metal Sector Margins

India’s hot-rolled coil (HRC) prices have risen about 10 per cent since end-July and are now broadly at, or slightly above, import parity, leaving steel stocks such as Tata Steel, JSW Steel and SAIL at a critical inflection point. While Morgan Stanley remains constructive on the sector over the next 12 months, HSBC sees near-term downside risk if global prices do not rise further. Morgan Stanley’s September India Steel Tracker pegged domestic HRC at Rs 63,750 per tonne, up about 10 per cent since end-July. The brokerage said this is about 3 per cent above import parity — the landed cost of imported steel after accounting for the safeguard duty — indicating that domestic producers currently enjoy a modest pricing advantage over imports.

Import parity is a key benchmark because it represents the effective ceiling under which imported steel can compete in the domestic market. With prices at or above this level, Morgan Stanley expects elevated imports of recent months to normalise, reducing pressure on domestic mills while supporting current pricing. The safeguard duty, a temporary import levy intended to protect domestic producers from a surge in overseas shipments, has been a major support for prices. Morgan Stanley said it has helped widen spreads — the difference between steel selling prices and the cost of key inputs such as iron ore and coking coal.

Spreads rose about 1 per cent week-on-week to Rs 39,000 per tonne, near the April 2026 peak and about 43 per cent above the mid-December lows. For steelmakers, wider spreads are significant because they directly influence margins and operating profitability. Morgan Stanley expects steel stocks to perform well over the next 12 months. It cited low inventories, relatively healthy demand, support from the safeguard duty and an expected normalisation of imports. It also flagged potential medium-term tailwinds from China’s efforts to curb excess capacity — referred to as “involution” — and an improving domestic supply-demand balance.

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HSBC, however, sees a more cautious near-term picture. The brokerage noted that Indian retail HRC prices have risen 10 per cent in three months and are now broadly at parity with landed import prices, leaving little room for further domestic increases unless regional prices also rise. According to HSBC, muted regional steel-price increases could pressure Indian trade prices and steel stocks over the next two to three months. It said the equity rally in Indian steel stocks has largely tracked recent trade-price hikes, and a continuation would require visible increases in China’s HRC prices. For investors in Tata Steel, JSW Steel and SAIL, the key variables are domestic HRC prices, raw-material costs, import volumes, China’s pricing trends and the continuation of safeguard protection.

The current spread of Rs 39,000 per tonne remains healthy, but its sustainability will depend on whether demand and pricing hold after the recent 10 per cent run-up. Nomura’s latest note also pointed to firm domestic prices, with HRC at Rs 63,800 per tonne for the week ended September 25, near a four-year high. It retained ‘Buy’ ratings on Tata Steel, JSW Steel and Jindal Steel & Power, reinforcing the view that strong realisations can support earnings even if input costs remain elevated. The divergence between brokerages effectively hinges on whether import parity is a floor or a ceiling. Morgan Stanley treats the current premium as evidence of pricing strength and margin expansion, while HSBC views parity as a constraint that limits further upside unless global prices move higher.

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