In morning trades on Wednesday, Tata Steel Ltd, JSW Steel Ltd, and Steel Authority of India Ltd witnessed an increase of more than 1% in their stock prices. However, Jindal Steel and Power Ltd stock prices remained subdued. Analysts note that although steel demand in the country remains robust, supported by government infrastructure spending and boosting investor confidence, concerns linger over softening steel prices impacted by the festive season and rising raw material costs.
Motilal Oswal Financial Services Ltd conducted recent channel checks indicating continued softening of steel prices in the country. Analysts at Motilal Oswal mentioned that while a few Tier-I mills maintained their steel prices for December’23, spot flat steel prices have decreased 1% week on week and 3% month on month to ₹55,000 a tonne. Long steel continues to command a premium over flat steel, down 1% week on week to ₹55,300 a tonne.
Despite steel prices showing improvement even during the seasonally weak September quarter, they have paused as the festive season began in October. Factors such as labor shortages, pre-festive season inventory buildup, state elections, and limited construction activities in North India have kept metal demand subdued. Although expectations of post-festival season price hikes were high, they remain elusive.
Meanwhile, raw material prices are on the rise, with international iron ore prices approaching $130 a tonne, up from close to $105 a tonne CFR China. NMDC, the country’s largest iron-ore producer, has also implemented price hikes, adding potential pressure on profitability.
Steel spreads are currently at their lowest levels, and market participants are closely monitoring demand and price indications from Tier-I mills for December’23 deliveries, according to analysts at Motilal Oswal Financial Services Ltd.
During Q2FY24, most companies fell short of consensus estimates mainly due to negative price-cost effects, according to analysts at ICICI Securities. While volume growth for JSW Steel, SAIL, and APL Apollo was driven by capacity ramp-up, aided by a 14.8% YoY growth in domestic steel consumption in H1FY24, per tonne Ebitda for steel companies was significantly higher year-on-year due to no export duty but lower sequentially.
Looking ahead at profitability, analysts at ICICI Securities anticipate varied performance across companies, with coking coal cost escalation ranging from $10 per tonne for Tata Steel to $50 per tonne for SAIL.
