IGI Logo

Regaining ground

Domestic HRC prices (in traders’ market) after three months of delirium rose by an impressive 2% WoW. Exports realisation also jumped 8% WoW to USD780/t. Longs market continued to witness traction. In Europe, ArcelorMittal is contemplating a hike of EUR50/t for spot HRC price, while Nippon steel has announced a hike of USD100/t for HRC exports in February.

In China, we might see the market balance tightening, post the lunar holidays, as strict production restriction prior to the Winter Olympics are in place while demand is expected to pick up. All in all, we reiterate our positive view on the sector with Tata Steel (TP: INR1,950) and JSPL (TP: INR575) as preferred picks.

Domestic HRC prices rise; outlook salubrious

Domestic HRC price in traders market rose 2% WoW to INR64,750/t on average, with hikes up to INR2,000/t WoW reported in north and west markets. We view this increase as timely, close on the heels of the monthly price being set by major steel players in February 2022. As per our channel checks, some domestic mills have already listed HRC/CRC price hikes by INR500-700/t. Besides, we do not foresee any immediate threat of imports as some plants in South Korea/Japan are undergoing maintenance and production cuts are being implemented in China, prior to Winter Olympics. On the longs front, rebars in both primary and secondary market gained further traction on improving demand.

China HRC prices might rise further post lunar holidays

In China, production cuts are being strictly implemented in Q1CY22. In Tangshan, for instance, close to 8.91mt of steel output (30% of Q1CY21) is expected to be impacted in Q1CY22. The 2+26 cities impacted by production restraints during the winter Olympics account for 47% of China’s total HRC production capacity. Hence, HRC supply is likely to decline significantly in Q1CY22. On the demand front, a series of macro policies to boost demand are likely to show effect post the lunar holidays. We expect domestic prices in China to rise further in Q1CY22 post the holidays.

Outlook: Cost push showing in the prices

After a lacklustre period of nearly three months, we finally see concerted price hikes again. In Japan, Nippon Steel has hiked its HRC export price by USD100/t for Feb-22 deliveries, while in Europe, ArcelorMittal is pushing for a EUR50/t hike. In northern Europe, rebar prices are supported by high energy cost. In India as well, our channel checks indicate that listed players have hiked HRC/CRIC price by INR500-700/t in the last week of January 2022. If Nippon Steel’s hike is absorbed in the export market, we might see domestic firms also raising their export offers.

In the current operating environment of high coal cost, but relatively sanguine iron ore prices, we prefer players with less exposure to coking coal. Hence, we maintain Tata Steel (TP: INR1,950; 5.5x FY23E EBITDA) and JSPL (TP: IRN575; 5.5x Q3FY23E EBITDA) as the preferred picks in this space.

To Read Complete Report & Disclaimer Click Here

lease refer disclaimer at https://www.edelweiss.in/disclaimer

SEBI Registration No. INH000000172

Above views are of the author and not of the website kindly read disclaimer