The Hindu Business Line : Steel band in full flow at the bourses

Mumbai, July 14 The public sector Steel Authority of India Ltd was the star performer among metal stocks last week with the company’s share gaining nearly 22 per cent in five days of trading. JSW Steel didn’t do too badly either, with the stock gaining a little over 16 per cent.

Analysts tracking the sector point to a host of favourable factors for the improved sentiment. ABN Amro Bank, for instance, in a recent report on the future prospects of SAIL, highlighted the fact that growth in annual domestic steel demand has accelerated to 11 per cent during 2005 and 2006 after averaging what it claimed to be 6.4 per cent in the last decade. What is more, it expects the growth to average 12 per cent by 2010 spurred by corporate investments in capacity in such sectors as power generation, automobiles, real estate and so on.

Is there any danger of supplies outstripping demand to dampen prices? Here too the bank concludes on a helpful note that while there might be some ‘brownfield’ (a reference to capacity additions in existing locations) expansions, the ‘greenfield’ projects announced in the past two years have been slow to get off the ground.

On the price front too, circumstances seem to favour steel industry. Global prices, which had softened during the second half of 2006, have bounced back in the first half of the current year with rise in Asian steel prices being the sharpest.

In a sign of increasing overseas interest in the domestic steel industry, Credit Suisse International has announced that it has initiated coverage of Tata Steel. It has concerns over the high debt levels of the Tata-Corus combine but, in the same breath, also notes that the steel industry is placed on an ‘up cycle’ (a reference to a firm trend in steel prices) which makes Tata Steel what it calls a ‘strong play’ (an assessment of strong investor preference for the stock). The Moody’s and the S&P’s may have their concerns on the company’s debt. Clearly, investors seem to have no such worries.

At the Bombay Stock Exchange, the metal index was the star performer among all sectoral indices with a growth of 11 per cent in one week. The market is rocking to some heavy metal music.

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