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Ferrous companies in our coverage universe are likely to report sequentially higher spreads benefiting from higher realisations partially offset by marginal increase in raw material costs. Volumes across steel companies are expected to come higher sequentially, primarily on account of seasonally strong quarter. Net realisations during the quarter are likely to witness an average increase of ~2.8k/t QoQ while coking coal costs are likely to increase by US$25-30/t QoQ. This will result in an average INR2.2k/t increase in margins. Non-ferrous companies are likely to benefit from sequentially higher realisations and lower thermal coal costs which will likely aid margins during the quarter. China’s property market has shown signs of stabilising since Jan’23. The average price of new residential buildings witnessed a marginal MoM increase in March’23. This was last witnessed in 2HCY22. The transaction area of new houses in 100 key cities witnessed a 20% MoM increase in March’23 and a 40% YoY increase as per preliminary statistics. Expectation of Chinese demand sustainability is likely to drive metal prices globally. India spot HRC price of INR60.2k/t is at INR3.2k/t discount to China import parity landed prices. Further, recent correction in Coking coal prices is likely to aid spot spreads for steel majors. Sustainability of Chinese steel demand and subdued coking coal prices could be the key triggers for a rally in metal names. HNDL/JSP/TATA remain our preferred picks in the metals space.

* Margins of steel companies to improve in 4QFY23: Ferrous companies in our coverage universe are likely to report sequentially higher spreads benefiting from higher realisations partially offset by marginal increase in raw material costs. Volumes across steel companies are expected to come higher sequentially, primarily on account of seasonally strong quarter. Net realisations during the quarter are likely to witness an average increase of ~2.8k/t QoQ while coking coal costs are likely to increase by US$25-30/t QoQ. This will result in an average INR2.2k/t increase in margins.

* Higher realisations to aid margins in non – ferrous space: We expect the non-ferrous companies to likely benefit from sequentially higher realisations and lower thermal coal costs which will likely aid margins during the quarter. Hindalco will likely witness sequentially higher margins during the quarter with Indian operations benefiting from higher realisations while Novelis spreads are expected to improve from 3Q lows of US$376/t aided by higher realisations post activation of inflation clauses and sequentially lower costs. The impact of can segment destocking is expected to sustain for ~1-2 quarters. We therefore expect Novelis volumes to grow sequentially albeit at a slower pace. We expect Hindustan Zinc EBITDA to increase by 6.3% QoQ primarily due to higher realisations partially offset by 2% brand management fees for 2HFY23

* Sustainability of Chinese demand to ensure high steel realisations: China’s property market has shown signs of stabilising since Jan’23. The average price of new residential buildings witnessed a marginal MoM increase in March’23. This was last witnessed in 2HCY22. The transaction area of new houses in 100 key cities witnessed a 20% MoM increase in March’23 and a 40% YoY increase as per preliminary statistics. Expectation of Chinese demand sustainability is likely to drive metal prices globally. India spot HRC price of INR60.2k/t is at INR3.2k/t discount to China import parity landed prices.

* HNDL / JSP / TATA preferred name in metal space: Margins for steel companies are expected to expand QoQ in 4Q. Further, recent correction in Coking coal prices is likely to aid spot spreads for steel majors. Sustainability of Chinese steel demand and subdued coking coal prices could be the key triggers for a rally in metal names. HNDL/JSP/TATA remain our preferred picks in the metals space.

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