Why Indian Steelmakers May Not Fret About Prices At One-Year Low
Lower inventory in China and a stable margin will help Indian steelmakers when prices are at their lowest in nearly a year.
Lower inventory in China and a stable margin will help Indian steelmakers at a time prices fell to their lowest in nearly a year.
Hot-rolled coil prices stood at Rs 44,000 a tonne in December in India, according to Edelweiss. That’s the lowest since December 2017.
Even prices in China, the global benchmark, fell more than 12 percent in two months to $490 per million tonnes, according to Bloomberg. The decline was steep in November, and is mainly due to lower-than-anticipated winter shutdown in China—supplier of more than half the world’s steel—amid rising trade tensions between the world’s two largest economies, according to a note by brokerage Haitong.
Lenient pollution control measures in China that allowed local governments to set their own capacity cuts during winter led to a spike in steel output and put pressure on prices, rating agency ICRA said.
Barring market leader JSW Steel Ltd., shares of Indian steelmakers tumbled this year. BloombergQuint awaits replies to emailed queries sent to Jindal Steel and Power Ltd., JSW Steel Ltd. and Steel Authority of India Ltd.
Analysts, however, say the companies need not be overly concerned. Here’s why
Stable Spreads
The product spreads—the difference between the cost of raw material and selling price—remained stable so far in December as iron ore and coking coal prices fell, according to Edelweiss. This supported the margin of steelmakers.
Falling China Steel Exports
China steel exports fell to their lowest level since February this year. It declined nearly 4 percent from the previous month to 5.2 million tonnes in November, according to Bloomberg data.
“Domestic steel prices are expected to hold ground unless Chinese export prices don’t fall further,” Amit Dixit, assistant vice president-institutional equities, research at Edelweiss Research, said. And that, he said is “unlikely as higher raw material prices in China may push millers to increase hot-rolled coil prices”.
Lower Stockpile In China
SteelHome China rebar inventory fell to its lowest level since March 2010, according to Bloomberg.
How Long Will This Last?
ICRA said as spring construction activity picks up in China after the New Year holidays in February, seaborne steel prices are likely to recover. This, it said, will support domestic flat steel prices in financial year 2019-20.
But a China steel survey by Macquarie Wealth Management indicated a weaker sentiment due to lower demand during the winter. The collective capacity utilisation rate of the mills, it said, fell for the second straight month due to higher raw material inventory.
Stock Potential
Jindal Steel and Power, SAIL and Tata Steel Ltd. fell in the range of 18-42 percent so far this year. JSW Steel, however, gained nearly 14 percent. That compares with about 8 percent decline in the NSE Nifty Metal Index during the period.
The Bloomberg consensus target implies a potential upside of 28-68 percent for all steelmakers.