Steel Stocks Rally As Credit Suisse Expects Prices To Remain Elevated
Shares of domestic steelmakers rallied after Credit Suisse said it expects prices of the alloy to remain elevated.
“Indian steel prices rose $100 per tonne in December and $45 per tonne this week,” the research firm said in its note. “We expect steel prices to remain elevated on demand recovery, shortage of steel and significant cost-push.”
Credit Suisse listed Tata Steel Ltd. as its preferred picks among steelmakers on account of ore integration and Ijmuiden, Netherlands sale as catalysts. It also picked Jindal Steel and Power Ltd., citing deleveraging and ramp-up of its business.
Shares of Tata Steel gained as much as 6.1% to be the top performer on the Nifty 50. Shares of Jindal Steel and Power, too, rose as much as 5.6% to a six-year high of Rs 300 apiece. The Nifty Metal index is the top sectoral performer in Thursday’s session, gaining as much as 3.75% to its highest since October 2018.
India’s apparent steel demand, according to Credit Suisse, rose 6% year-on-year in December 2020. The research firm also cited a reduction in inventory of steel mills by 21% over the year earlier. “Our channel checks suggest that demand is outstripping supply,” the note said. The share of exports of production remained low at 7% compared with 22% in May and June.
Share of major companies in steel production stood at 64% in December compared with FY20 normal of 58%, rising month-on-month due to a ramp-up by Jindal Steel. “With a pick-up in demand, we expect secondary steel producers to ramp-up utilisation further.”
Jindal Steel on Jan. 4, 2021 said it had recorded its highest ever production and sales in December. Sales rose 25.4% year-on-year in December, while production rose 30% during the same period.
JSW Steel on Thursday said its average capacity utilisation in the third quarter rose to 91% compared with 86% in the July-September period.
Shares of Tata Steel are trading at Rs 725.85 apiece — the highest in three years. Of the 28 analysts tracking the company, 22 have a ‘buy’ rating, five suggest a ‘hold’ and one has a ‘sell’. The stock crossed its Bloomberg consensus 12-month price target of Rs 678 apiece in Thursday’s session.
Jindal Steel stock, on the other hand, has gained in five of the last six trading sessions. Of the 20 analysts tracking Jindal Steel, 18 have a ‘buy’ rating and two suggest a ‘sell’. The average of Bloomberg consensus 12-month price target implies an upside of 6.7%.