Steel Stocks Poised For A Correction?

Rising steel prices have sent stocks of steelmakers soaring over the past one year. Shares of major players in the sector, such as Tata Steel, JSW Steel and SAIL, have clocked one-year returns in the 14-75 percent range.

JSW Steel has outperformed its peers, clocking gains of 74 percent in the last one year. Tata Steel is not too far behind with 70 percent gains.

But is the rally sustainable? All these stocks are currently trading at well above the Bloomberg consensus 12-month price target, reflecting a potential downside.

The consensus price target from a Bloomberg poll of analysts is Rs 405 for Tata Steel stock, which is 6 percent lower than its current market price of Rs 431.

The consensus price target for JSW Steel is 163.3 against the current market price of Rs 177.9, representing a downside of 9 percent.

SAIL’s consensus target price of Rs 34.8 is 35 percent lower than its current market price of Rs 52.95.

Analysts suggest that steelmakers have been trading higher on account of a sharp surge in steel prices, which is driven by rising raw material prices. The surge in steel prices is unlikely to be further absorbed by end-users in a subdued demand environment, which may eat into the margins of the steelmakers and in turn lead to some price correction.