Low inventory and high demand should lead to re-stocking going into the busy season which spans October to March. This comes as infrastructure building and construction activities gain pace following the end of the monsoon.
Indian steel producers have taken price hikes driven by higher input costs. Coking coal prices are high but mine restarts in China should reduce prices due to supply expansion.
Among Indian steel producers, Tata Steel and JSW Steel have high capacity of flat products and lower exposure to external coking coal.
SAIL has high exposure to coke prices.
In the July-September quarter (Q2), domestic steel realisations are overall expected to soften due to monsoon-led seasonal weakness.
Domestic rebar prices have seen recovery on tightening supply and low inventories. Auto sector contract price revisions negotiated in the April-June quarter (Q1) will partially offset any softness. In the UK and the Netherlands, steel prices are expected to improve in Q2 and the October-December quarter (Q3).
European coking coal costs will also rise. HRC prices in the US are up over 30 per cent from August levels, while China’s export HRC prices are stable.
On the raw material front, iron ore is soft with NMDC cutting prices in August in response to softer global ore price. But coal is up. In September, NMDC raised lump ore prices by ₹150 per tonne but kept ore fines unchanged. Coal prices continued to rise month-on-month (M-o-M) in September.
In August, domestic rebar prices were up 10 per cent M-o-M (after falling for three months) and up 12 per cent year-on-year (Y-o-Y).
HRC prices increased 2 per cent M-o-M and 19 per cent Y-o-Y.
The rebar increase was due to planned maintenance shutdowns, lower inventories and good demand. HRC prices were up due to tighter supply, and improving West Asia demand.
In September, per tonne domestic HRC and primary rebar prices continued to rise to ₹61,700 and ₹57,300, respectively.
Rebar was rebounding from ₹48,000 a tonne in July. Stainless steel prices also strengthened, up 3 per cent M-o-M and 17 per cent Y-o-Y.
Currently, given geopolitics, global demand is being driven more by concerns around potential supply-chain disruption rather than prices.
Security of supply is a high priority. In the US, the market has absorbed 50 per cent tariffs on steel and aluminium.
The recent recovery from July lows and absorption of rising raw material costs indicate that supply-demand equations support the price uptrends.
Apart from domestic operations, Tata Steel may benefit from an improving European outlook.
Jindal Steel and JSW Steel may be strong plays on improving volumes. There could be upsides to consensus estimates of ferrous metal realisations for FY27.
However, investors must be selective about stocks, and monitor domestic supply-demand, and raw material costs.
The recent recovery in steel prices has already led to a positive re-rating across the steel sector. The key question is whether realisations have started to recover after hitting rock-bottom levels.
If steel prices sustain, earnings upgrades could lead to further valuation re-rating.
Tata Steel looks more attractive in the near term from a valuation standpoint, with an improving earnings outlook for European operations.
For the medium term, Jindal Steel and JSW Steel offer strong combinations of volume growth and pricing leverage.
SAIL has the highest operating leverage and exposure to recovering rebar prices.
Tata Steel’s consolidated earnings before interest, taxes, depreciation and amortisation (Ebitda) stood in line with consensus estimates at ₹9,264 crore (up 25 per cent Y-o-Y, but down 6 per cent quarter-on-quarter (Q-o-Q)) in Q1.
Consolidated revenue was ₹60,794 crore, up 14 per cent Y-o-Y, down 4 per cent Q-o-Q, which was ahead of consensus.
The Q-o-Q Ebitda decline was due to lower volumes led by planned maintenance shutdowns. Profit after tax (PAT) was ₹2,664 crore (up 21 per cent Y-o-Y but down 18 per cent Q-o-Q).
SAIL’s adjusted revenue (excluding rail provisions) stood at ₹26,555 crore, up 3 per cent Y-o-Y but down 14 per cent Q-o-Q. The adjusted Ebitda was ₹4,462 crore, up 72 per cent Y-o-Y and down 1 per cent Q-o-Q, which comfortably beat consensus. PAT was ₹1,644 crore, up 121 per cent Y-o-Y and down 10 per cent Q-o-Q, ahead of consensus.
Key raw material player, Coal India reported muted Ebitda. Consolidated revenue was ₹46,255 crore, up 8 per cent Y-o-Y and down 1 per cent Q-o-Q. Ebitda, adjusted for stripping activity, was ₹10,238 crore, down 9 per cent Y-o-Y and down 17 per cent Q-o-Q, in line with estimates. Reported Ebitda was ₹12,069 crore (down 4 per cent Y-o-Y and down 5 per cent Q-o-Q), a miss versus consensus. Net profit was ₹8,852 crore, up 1 per cent Y-o-Y and down 18 per cent Q-o-Q, ahead of consensus due to high other income.
