Workers unload iron pipes from a truck at a wholesale steel and iron market in Mumbai (Photographer: Dhiraj Singh/Bloomberg)

Improving Demand, Stable Exports To Drive Steel Prices Higher: Morgan Stanley

Morgan Stanley expects capacity utilisation for Indian steel companies to rise driven by improving domestic demand and stable exports. This and a stable global price outlook bodes well for domestic prices and earnings for the steel makers, analysts Ashish Jain and Mukund Sarawogi wrote in a research note.

We expect higher exports, particularly given the price differential versus international prices, which further boosts growth potential for the domestic companies.”
Morgan Stanley Report

The global brokerage house expects steel prices to rise 8 percent in the current fiscal year and only 2 percent in the next. It said capacity utilisation may bounce back from its decadal lows of 81 percent in FY16 to 91 percent in FY18.

Outlook On India Steel Stocks

Tata Steel

  • Upgraded to Overweight with price target Rs 625 (from Rs 575 earlier)
  • Domestic business on a firm footing
  • Ramp-up of Kalinganagar unit capacity to lead to 12 percent volume growth, cost reduction
  • Gains from restructuring in the European business resulting in improved profitability and potential resolution of balance sheet challenges

Key risks

  • Weaker-than-expected steel prices
  • Delayed ramp-up of Orissa project
  • Continued disappointment in global earnings

JSW Steel

  • Downgraded to Equal-weight with price target Rs 214 (from Rs 220 earlier)
  • Robust volume and realisation improvement will aid strong core earnings
  • A reduction in iron ore prices, given the company’s lack of backward integration versus full integration for peers
  • Faster-than-expected commissioning of additional capacity at Dolvi
  • Winning more iron ore mines in auction conducted by state government

Key risks

  • Higher-than-expected global commodity prices, resulting in increased material costs
  • Lower operating cash flow that lead to balance sheet challenges


  • Rated Equal-weight with price target of Rs 134 (from Rs 140 earlier)
  • Positive: ramp-up of new facility at Angul, leading to higher volumes and cost reduction
  • Negative: weaker-than-expected cash flow as the volume ramp-up is slower


  • Maintained Underweight with a price target of Rs 48 (from Rs 49 earlier)
  • Continued capex to complete ongoing expansion and higher net debt
  • Higher-than-expected operating costs as efficiency gains flow through slowly