Steel stocks shine on economic revival

Suresh P Iyengar Mumbai | Updated on November 19, 2020

Strong demand across sectors, rise in price, Govt stimulus change outlook

Steel company stocks have hogged the limelight in the last few days with the changing economic prospects post the Covid ravage. The stimulus package announced by the government in India and across the globe is expected to keep the demand for steel robust.

The Tata Steel stock jumped to ₹523 on Thursday from ₹405 recorded on November 1 while JSW Steel was up at ₹331 against ₹309 logged at the start of this month; the latter touched a new 52-week high of ₹350 early this week. Jindal Stainless made a 52-week high of ₹66 on Thursday.

The strong rebound in demand across sectors and sharp rise in steel prices in the international markets have enabled Indian steel companies to hike prices since July.

TV Narendran, Managing Director, Tata Steel, said the demand has been strong from all the sectors of the economy and it is expected to sustain in coming days aided by the government economic stimulus.

Tthe government is not only announcing new infrastructure projects, but also making timely payments to contractors who have completed the projects, he added.

Moreover, Narendran said the worries of imports have also disappeared as China has turned an importer of steel rather than exporting to India.

Concern over raw material

The recent rise in iron ore prices is the only concern for steel companies. NMDC, the largest supplier of iron ore India, increased lump ore prices by 11 per cent to ₹4,000 per tonne from ₹3,600 per tonne set on November 4. Prices of fines were hiked by 9 per cent to ₹3,610 per tonne (₹3,310 per tonne). The new rates come into effect from November 17, it said.

However, the unofficial ban on coking coal imports by China from Australia is expected to keep the coking coal prices under check. China move to ban imports from Australia comes on the back of Canberra’s call for an international probe on the origin of Corona virus pandemic. Reacting to Chinese import ban, Australia has banned Chinese telecommunications firm Huawei from its 5G network and restrictions on Chinese involvement in infrastructure, agriculture and livestock. The trade war between Australia and China is expected to keep coking coal prices under check.

The robust steel demand is expected to help steel companies pass on increase in raw material cost to end consumers.


Risks ahead

However, after the recent sharp run in the share price, analysts advise investors to remain cautious on the sector.

“As odds increase in favour of withdrawal of stimulus by China with the achievement of expected economic recovery and limit the overheating of economy, we believe that current steel prices ride on risk of over optimism. With margins at near peak levels, strong revival of global supplies and heightened risks to stimulus withdrawal, we see meaningful downside risks,” said Prabhudas Lilladher in a report.

Published on November 19, 2020

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