Elixir Securities Limited -Flash Note

Karachi, June 13, 2018 (PPI-OT): International Steels Limited – Anti-Dumping Duties Imposed on Colour Coated Steel Coils/Sheets

National Tariff Commission’s (NTC) anti-dumping investigation against imports of colour coated steel coils/sheets imports originating from China and South Africa (started 10th June, 2017) was finally concluded with imposition of definitive anti-dumping duties on the said dumped imports in the range of 5.36%-14.24%.

NTC determined that material injury was caused to the domestic industry and threat of material injury persisted. It also noted that there was significant increase in volume of dumped imports and significant price undercutting.

As a result, local industry suffered material injury on account of 1) lower levels of production and utilization, 2) loss of market share, 3) inventory pilling, and 4) negative impact on growth.

ISL has a relatively small capacity of 84,000tpa of colour coated coils in comparison to its post- expansion CRC capacities of 1,000,000tpa/462,000tpa cold rolled coil (CRC) / galvanize coil (GC). The other Flat Steel manufacturer, Aisha Steel (ASL), does not have a colour coated manufacturing facility.

This anti-dumping duty can potentially help in addressing pressures on GC segment which is strangled by 1) decline in GC-CRC spreads to USD20/ton from historical average of USD80/ton in local market, and 2) decline in local production and market share on account of misdeclaration of GC (by commercial importers) as colour coated coil to avoid anti-dumping duties.

We estimate that every USD10/ton increase in GC-HRC spreads can raise earnings by ~6% or ~PKR1/share for ISL. Overall, we maintain our liking for the stock with Dec-18 PT of PKR155/sh.

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