Analysts expect further consolidation of steel stocks, as the domestic steel sector is one of the fastest growing, in-demand. Though the sector was hobbled by Covid-19 and global export/import circumstances, it regained its glory thanks to the Government’s infrastructure push boosting the demand for steel.  

Subdued movement

Many analysts remain bullish about the sector’s prospects, but stocks such, as Tata Steel, JSW Steel, Jindal Stainless, NMDC Steel, and SAIL, were yo-yoing for the past two weeks. 

On Monday, Tata Steel edged up by 0.23 per cent to ₹109.85. In the March quarter, retail investors have increased holdings from 23.72 per cent to 23.91 per cent. Steel Exchange India Ltd gained 10 per cent to ₹15.40, while JSW Steel moved by a mere 0.31 per cent to ₹748.8. 

Gaurav Bissa, VP, InCred Equities said, “Steel stocks, as well as other metal stocks, have been trading in a range for the last few months. Though there were small periods of outperformance seen by this space, the overall trend has been subdued.”

Also read: Tata Steel, JSW, JSPL and SAIL: How have they fared on key metrics and which stock should you buy?

Demand drivers 

With the country aiming to become a $5-trillion economy by 2030, the steel industry is set to play a pivotal role in steering India towards its goal. With almost 125 million tonnes (mt) production, India is the No 2 producer of crude steel after China.  

According to predictions by the World Steel Association, the steel industry growth rate is estimated to be about 6.7 per cent in 2023. India’s steel consumption is expected to grow by 7.5 per cent this fiscal year, boosted by rising demand from the domestic construction, railways, and capital goods sectors, said the Indian Steel Association (ISA). 

Steel demand is expected to be 128.9 mt during FY24 -- up from 119.9 mt during the previous year, ISA said.  

Pricing mechanism

Recent changes in export taxes and import duties on steel, complemented by the rising demand for affordable housing, the government’s initiatives announced in Budget 2023-24 on sustainable urban development, construction of proposed logistics parks, and industrial corridors act as catalysts driving the demand for the metal. Though the onset of monsoon and approaching Lok Sabha elections may cause a temporary blip to the demand. 

The price of steel is a dynamic one – more recently in February 2023, there was a five per cent increase in steel prices. Multiple factors, including rise of raw material prices (iron ore and coking coal) and rise in infra projects, have impacted steel prices.  

Also read: India’s key steel export markets come under pressure in May

Consolidation phase

Abhishek Jain, Head of Research, Arihant Capital, said, “Global prices have been recovering since May, following China’s announcement of a rate cut. Although demand was initially low, it is now showing signs of picking up. Notably, steel companies in China have recently increased their prices.  

“We hold a positive view of Indian steel companies. However, given the recent rally in some stocks, it would be prudent to accumulate them gradually, taking advantage of dips in the market,” he said adding that “this strategy aligns with our expectation of robust demand, fuelled by infrastructural development and increasing rural demand.” 

Gaurav Bissa added, “The steel space is expected to trade in a consolidation manner for the time being as the heavyweights themselves are not showing any signs of a major upside. Prominent names like Tata Steel is trading below its 2-year descending trendline resistance, whereas JSW Steel has reversed from its 18-month hurdle, which is likely to keep the stock as well as the steel space under some pressure. The sector is likely to witness time correction rather than price correction in the coming weeks.” 

According to Abhishek Jain, “we maintain an optimistic long-term outlook on Indian steel companies and recommend purchasing those with strong fundamentals and capable management during market declines.” 

Also read: India’s April-May steel imports from China amongst the highest in recent years

Key concerns

As a raw material, the demand for steel has been rising meteorically.

Though there are concerns about price hike and environmental impact, the benefits and applications of the metal are too many. The use of steel and allied products across multiple industries – shipbuilding, automotive, pharmaceutical, aviation, real estate, energy, home appliances, electronics, etc., and the ability to recycle steel make it a preferred raw material in industries.