IGI Logo

Domestic steel prices consolidate

Domestic HRC price in traders’ market was down slightly this week following a steep increase of 10% over the past one month. Longs prices also edged down. That said, our channel checks indicate that demand is slowly firming up; hence, there might be price hikes by major steel players in Nov-21 as well. Regional prices stayed firm, but Chinese export prices were down 3% WoW to USD950/t—tracking domestic prices.

In Europe, on the other hand, buyers have restarted restocking for Q1CY22; hence we expect prices to either stabilise or increase. We maintain the positive view on ferrous with Tata Steel (TP: INR2,055; 5x Q3FY23E EBITDA) and JSPL (TP: INR575; 5x Q3FY23E EBITDA) as our preferred picks.

Domestic steel prices slightly down; but outlook remains positive

Domestic HRC prices declined 0.5% WoW to INR70,670/t on average in traders’ market. Prices in the secondary market, however, dropped INR2,000/t last week on festive season and high prices deterring purchasers. Our channel checks indicate that prices were up again yesterday by INR400/t on average. Besides, domestic iron ore in Odisha is up 20% MoM to INR7,000/t (63% grade fines). Hence, we might see NMDC’s notified prices also bottoming out. Besides, the latest iron ore e-auction trends are positive, indicating that demand stays firm. Landed price of imports still stays significantly above domestic prices.

Good results/commentary offset by China’s price regulation

Our analysis of Q3CY21 results of SSAB, Erdemir, Posco and Russian companies suggests that: i) realisation/shipments in Q4CY21 are expected to improve; ii) restocking in Europe market points to stabilisation of prices; and iii) energy prices are likely to stay relatively firm in the near term. However, the automotive sector continues to stay soft owing to semiconductor chip shortage. Despite demand uncertainty and an attempt to regulate commodity prices in China, we see a limited downside to regional prices if exports remain low. We will also keep close tabs on the possible policy support in China.

Outlook: Steady global prices comforting

Despite the weakness in domestic steel prices in China owing to the government’s endeavours to regulate prices, we find steady prices elsewhere. Besides, the action plan pertaining to carbon emission peak by CY30 reiterates supply-side curtailments on both steel and aluminium. In Europe and the US, after a hiatus of nearly two months, spot prices have started increasing again as restocking demand for Q1CY22 shipments gathers steam. In Indian context, domestic steel prices are consolidating after a surge of 10% in past one month. However, landed price of imports is still at a premium of 10–12% to domestic HRC price. We maintain the positive view on the sector with Tata Steel (TP: INR2,055; 5x Q3FY23E EBITDA) and JSPL (INR575; 5x Q3FY23E EBITDA) – both ‘BUY’ – as our key picks.

To Read Complete Report & Disclaimer Click Here

Please 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