Jindal Steel Continues To Outshine Peers, JSW Steel Disappoints

Jindal Steel & Power Ltd. produced more than larger peers in the quarter-ended June after economic activities resumed as the nation eased lockdown curbs.

Crude steel production of the Naveen Jindal-led mill rose 9.7% year-on-year in the three-month period, mainly aided by limited inventory build-up. That compares with a 30% and 41% decline in output for JSW Steel Ltd. and Steel Authority of India Ltd., respectively, according to exchange filings. Tata Steel Ltd. is yet to report its quarterly output numbers.

In June alone, Jindal Steel’s standalone production rose 23% over the preceding month and 37% year-on-year. On a sequential basis, however, Jindal Steel’s production fell. Still, that’s less than the drop in peers.

India’s steel mills took a hit after the government imposed restrictions on movement of people as it tried to contain the Covid-19 pandemic. That deepened the slump in demand for the alloy as new construction and purchases of cars and houses were delayed, leading to a fall in prices. Still, Jindal Steel managed to hold ground, helped by better capacity utilisation and cost advantage of sourcing raw materials.

That gives hope to Amit Dixit, research analyst at Edelweiss Financial Services, who expects Jindal Steel to be the first beneficiary of a possible revival in steel demand, led by progressive easing of lockdown, as the construction and infrastructure sector is usually the first to rebound. The demand for long steel products—such as rebar, rails and wire rod, among others, used in the construction sector—is showing signs of an uptick, Edelweiss said. That'd help both Jindal Steel and SAIL.

JSW Steel and Tata Steel, on the other hand, are more into the production of flat steel products, such as sheets and plates used in automobiles, domestic appliances and shipbuilding.

JSW Steel's Guidance

According to Morgan Stanley, JSW Steel’s crude steel production in the first quarter is a tad softer than expectations, and that makes the company’s guidance of 16 million tonnes output in the ongoing fiscal appear stretched. The company may require operating at an average of 97% through the rest of the year, assuming no contribution from its unit in Dolvi, Maharashtra, the research house said in its first-quarter update.

Seshagiri Rao, joint managing director and group CFO at Jindal Steel, sounded cautious on demand outlook for the steel industry. In an interview to BloombergQuint, he said recovery would take some time as steel-consuming industries such as machinery, construction, capital goods and auto sector have witnessed a huge destruction in demand.

Shares of Jindal Steel have surged 70% since the implementation of the nationwide shutdown, effective March 25. That compares with a 21%, 30% and 40% gain in Tata Steel, JSW Steel and SAIL, respectively.

Price Hike Possibility?

A channel check of dealers by Credit Suisse suggests that major steel mills may announce a price hike for July deliveries. Though it’s a seasonally weak quarter, Indian steel prices are at a discount to China and nations with free trade pacts, and with economic activity picking up, a hike, if any, may stick.

According to Emkay Global, export prices of domestic hot-rolled coil to Vietnam have risen by $25 a tonne since their low in June to $448 per tonne. That may lead to a Rs 500-750-a-tonne rise in prices of flat steel products. While long products rebar rates may see a minor drop of Rs 500, prices of wire rods may remain stable or witness a minor hike, the research firm said in a note.

A price hike in flat steel, if implemented, will be more beneficial to JSW Steel and Tata Steel, Edelweiss’ Dixit said, but what remain to be seen is the sustainability of these prices, given domestic demand is still weak.