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HRC prices in traders’ market have crossed Rs60,000/te on average for the first time post Jun-22 as expectations of a price hike by major steel players in Mar-23 builds up. Spot spread was aided by coking coal price dropping US$40/te WoW. Rebar-HRC premium has contracted to Rs3,000/te- lowest in the last two months as HRC prices are aided by concerted price hikes across all regions. That said, China is again active in export market with mills booked up to Apr-23 as domestic realisation is lower. Hence, we expect regional (South East Asia and Far East) prices to remain range bound in the near term.

In China, while factory activity appears stronger in Feb-23, demand revival post the reopening has been underwhelming, resulting in steel inventory at mills increasing. In our view, the outcome of ‘Two Sessions’ is critical for demand recovery. In the interim, we still retain our circumspect outlook on the sector with JSPL (TP: 750; BUY) and Shyam Metalics (TP: Rs425; BUY) as our key picks in the space owing to the ensuing cost efficiencies and volume growth potential, respectively. APL Apollo (TP: Rs1,375; BUY) is another preferred pick led by it remaining insulated from HRC price volatility.

* HRC prices rise; spot spreads aided by falling coking coal prices: Domestic HRC prices in traders’ market were up Rs500/te WoW to Rs60,300/te on expectation of price hike of Rs1,000-1,200/te by major steel players in Mar-23. However, India’s export price remained unchanged WoW at US$708/te as Chinese players are focusing on both Vietnam and UAE markets with competitive offers. That said, at current level, Indian players are indifferent as both domestic and export prices are similar. Spot spread rose to Rs27,050/te- highest in the last two months- as coking coal price came off by US$40/te (11%) WoW. Rebar prices in primary market, however, dropped by Rs400/te, tracking the identical decline in secondary market. Our channel checks also indicate that market is bracing up for NMDC’s price hike, expected at Rs200-250/te for Mar-23.

* Demand revival in China underwhelming; all hopes on ‘Two Sessions’: As expected by us, demand revival post the reopening has been underwhelming. This has resulted in total finished steel inventory rising 27% in Feb-23 to 17.9mnte. Rebar and wire rod inventory has risen 40-45% in Feb-23 as construction activity has remained slow. As a result, China’s mills have once again turned to export market. As per Shanghai Metals Market (SMM), domestic mills are booked until Apr-23 and steel exports from China are likely to shoot up over the next two months. This is likely to keep regional prices in Far East/South East Asia under check. We believe the policies/measures during Two Sessions are critical for ascertaining the demand improvement in China. Also, we would like to keep a tab on the extent and duration of stimulus measures.

* Outlook: Two Sessions’ deliberations are critical. In India, the improvement in spot spread (as a result of lower coking coal price) comes as a relief for steel players. However, we believe China still remains the key. While real estate market in China is showing the initial signs of improvement, we still await more clarity on stimulus measures and their impact on the overall steel demand. Market participants in China are hopeful of more clarity in this respect post ‘Two Sessions’ over the weekend. We maintain our cautious outlook on the sector with JSPL (TP: Rs750) and Shyam Metalics (TP: Rs425) as our key picks owing to their longs-heavy product portfolios.

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