Tata Steel Ltd, JSW Steel Ltd, Steel Authority of India Ltd saw their stock prices rise more than 1% in morning trades on Wednesday. Jindal Steel and Power Ltd stock prices, however, remained muted. The analysts say that while steel demand in the country remains strong being supported by governments infrastructure spending and is supporting the investor confidence, nevertheless softening steel prices impacted by festive season and rising raw material prices are key risks to near term earning prospects.
The recent channel checks by Motilal Oswal Financial Services Ltd suggest that the steel prices have continued to soften in the country. Analysts at Motilal Oswal said that though a few Tier-I mills rolled over their steel prices for December’23, the spot flat steel prices have decreased 1% week on week and 3% month on month to Rs.55,000 a tonne. long steel continues to command a premium over flat steel and is down 1% week on week to Rs.55,300 a tonne.
The steel prices that had continued to improve even during the seasonally weak September quarter however have taken a breather as festive season kickstarted in October. As labour availability saw an impact, pre-festive season inventory buildup, state elections, and limited construction activities in North India have kept metals demand subdued, said analysts. Though the expectations of price hikes remained high post end of festival season, they still remain elusive.
In the meantime, raw material prices are on the rise. The international iron-ore prices that were close to $105 a tonne CFR China have risen and are close to $130 a tonne. Looking at the rising international iron ore prices, country’s largest iron-ore producer NMDC also has taken price hikes. The same could put pressure on profitability.
Steel spreads are currently at their lowest levels, and market participants and vendors are closely monitoring the demand situation and price indications provided by Tier-I mills for December’23 deliveries, said analysts at Motilal Oswal Financial Services Ltd.
During Q2FY24 , most companies undershot consensus estimates mainly due to negative price-cost effect, said analysts at ICICI Securities. The Key points during Q2 were that volume growth for JSW Steel, SAIL and APL Apollo was driven by capacity ramp-up, aided by domestic steel consumption growing 14.8% YoY in H1FY24. The per tonne Ebitda (earnings before interest tax depreciation and amortisation) for steel companies was significantly higher year-on-year due to no export duty, but lower sequentially.
Moving forward on profitability front, analysts at ICICI Securities have been expecting varied performance across companies as coking coal cost escalation may range from $ 10 per tonne for Tata Steel to $ 50 per tonne for SAIL.
Source: Mint News