Published on 11/03/2017 11:07:00 AM | Source: Emkay Global Financial Services Ltd

Indian Steel Industry - Exports offsetting poor domestic demand - Emkay

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Exports offsetting poor domestic demand

As per the JPC provisional data, finished steel production grew significantly by 13% in the month of Feb’17 to 8.8 mt, an all-time high growth, whereas consumption remained tepid and grew by only 3% YoY to 7.3 mt. Production from ESSAR+JSW+JSPL has increased significantly by 5 mt (+22% YTDFY17) to 28 mt followed by SAIL and Tata Steel at ~10 mt (+15% and +18% YTDFY17). On daily basis, MoM production growth has been highest at ESSAR+JSW+JSPL followed by RINL (+7.3% MoM) and SAIL (+3.3% MoM). 

 

Consumption slowed down in Feb’17. Export provides breathing window

* Consumption of finished steel has been low for the month of Feb’17 and stood at 7.3 mt (+3%/+10% YoY/MoM on daily basis). On year to date basis, consumption stood at 76 mt growing at the rate of 3.4% compared to 4.2% in FY16. Inventory in the system stands at 6.4 mt, down by 1.4% from Jan’17.

* Crude steel production grew by 8.5% YoY to 8 mt and 9% YTDFY17 to 89 mt for the month of Feb. TSL produced the most at 10.5 mt (+16% YTD) followed by ES+JSW+JSP at 23 mt (+30% YTD) and RINL at 3.6 mt (+8% YTD). SAIL grew at 1.7% YTD to 13.2 mt with maximum hit coming from Bokaro (-8% YTD) and Bhilai steel plant (-5.6% YTD).

* Finished steel production stands at 8.8 mt for the month of Feb’17 (+13%/+10% YoY/ MoM on daily basis). On YTD basis, production grew by 11% to 92 mt, wherein maximum production growth has been witnessed at TSL followed by SAIL and RINL, JSWL and JSPL, which at consolidated level grew by 19% to 52 mt.

* Import continued to contract and fell 46.1 % YoY and 10% MoM to 491 kt in Feb’17. For YTDFY17 as well, steel imports fell by 38% to 6.6 mt. However, Exports continued to rise and almost doubled on YTD basis to 6.6 mt from 3.7 mt in previous year. 

 

Our view

With the ramp up in newly commissioned facilities, domestic steel production continues to rise. Demand however has been tepid despite much optimism. This is encouraging the companies to focus on exports. We expect India to be net exporter this year. As far as price movement is concerned, we understand that demand for flat products remained weak and hence, companies were forced to roll back price hike that they had taken earlier in Jan’17. In fact in early March they had to offer further discounts. Demand for Long products, on the other hand, improved considering picking up of construction activities and prices have been hiked for the same. Sentiment has improved and the trade protectionism measures will continue to help prices despite weak demand. Meanwhile, the government is likely to make ADD permanent for five years soon. In this scenario, raw material spread and fluctuation in prices would play an important role. In this space we have sell rating on NMDC (TP: Rs 121), TATA Steel (TP: Rs 401) and SAIL (TP: Rs 44) whereas, hold rating on JSW Steel (TP: Rs 213).

 

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