Steel Sector Witnesses Mixed Trends in Stock Performance

Steel Sector Witnesses Mixed Trends in Stock Performance

Steel Sector Witnesses Mixed Trends in Stock Performance

Indian steel giants Tata Steel Ltd, JSW Steel Ltd, and Steel Authority of India Ltd experienced a more than 1% rise in their stock prices in Wednesday’s morning trades, reflecting positive investor sentiment. However, Jindal Steel and Power Ltd’s stock prices showed no significant movement. Analysts attribute the buoyant mood to strong steel demand in India, bolstered by the government’s infrastructure spending. Nonetheless, they warn of potential risks to near-term earnings due to softening steel prices and rising raw material costs.

Steel Prices Soften Amid Festive Season and Rising Costs

Motilal Oswal Financial Services Ltd’s recent channel checks indicate a continued softening of steel prices in India. While some Tier-I mills have maintained their steel prices for December 2023, spot flat steel prices have dropped 1% week-on-week and 3% month-on-month to ₹55,000 a tonne. Long steel, which typically commands a premium over flat steel, has also decreased to ₹55,300 a tonne. This price drop coincides with the festive season, which saw reduced labor availability, pre-festive season inventory buildup, state elections, and limited construction activities in North India, leading to subdued metals demand.

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Raw Material Price Hikes and Pressure on Profitability

As international iron ore prices rise from around $105 to $130 a tonne, NMDC, India’s largest iron-ore producer, has responded with price hikes. This increase in raw material costs could impact profitability, with steel spreads currently at low levels. The market is closely monitoring demand and price indications from Tier-I mills for December 2023 deliveries.

Quarterly Performance and Future Outlook

During Q2FY24, many steel companies fell short of consensus estimates, mainly due to the negative price-cost effect. Key highlights included volume growth driven by capacity ramp-up and a 14.8% YoY increase in domestic steel consumption in H1FY24. The per tonne Ebitda for steel companies was higher year-on-year, thanks to the absence of export duty, although it was lower sequentially. ICICI Securities analysts expect varied performances across companies moving forward, with coking coal cost escalation ranging significantly among different players.

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