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HRC prices in the traders’ market fell by Rs300/te WoW to the lowest level in a month mainly on subdued market activity due to local holidays. Nevertheless, spot HRC spread expanded as coking coal prices declined to US$300/te (down US$20/te WoW). Regional prices in South-East Asia were mixed with Far East prices up US$20/te WoW to US$705/te, while CIS prices shed US$30/te. Despite consumption growth of 20% YoY, longs prices have declined by Rs700/te in both primary and secondary markets, resulting in primary rebar-HRC spread shrinking to Rs1,170/te vs Rs3,200/te a month back.

In China, despite financial indicators being better than expected, we await signs of demand pick-up. Recently, China authorities sounded off on the high prices of iron ore, resulting in global iron ore fines price retreating to US$125/te (lowest in past 20 days). However, we do see the possibility of demand rise with the onset of peak construction season in China from Apr’23. Demand optimism in China keeps us positive on the ferrous space. Maintain BUY on JSPL (TP: Rs120).

* HRC prices decline in domestic market though spreads improve: Domestic HRC prices in the traders’ market fell Rs300/te WoW to Rs59,700/te due to local holidays. However, global coking coal prices have corrected by a further US$20/te to
US$300/te (lowest in past two months) as rain-led disruption in Australia in Jan’23 has abated. Also due to increasing buyers’ reluctance, particularly in China and India for higher price. In the previous fortnight, global coking coal prices corrected by
almost US$30/te, resulting in a corresponding improvement in spot spread. Spot spread has increased by Rs400/te WoW to Rs26,950/te (highest since Jan’23-end). Global HRC prices have remained range-bound this week as adverse global macros – e.g. turmoil in US banking space, recession concerns in the West and uncertainty around rate hike by the US Fed – weighed on commodities. That said, Nippon Steel has raised its prices by US$50-100/te for May’23 shipments. Ironically, steel prices in
the US have continued to rise (despite risk of recession) and are now at a premium of US$300/te to European prices. On the exports front, Indian (sheet) steel producers fared better with firm realisations in Europe. With price hikes by Far East players this

* Pinning hopes on demand recovery in China: While credit data is supportive of steel consumption growth in China, demand has thus far stayed subdued. Going ahead, we expect demand to improve as peak construction period sets in and money supply percolates through the system. As per Mysteel, many local governments in China have also launched a series of policies to promote cluster development of the manufacturing industry, which should support steel demand. On the supply front, we find the intermittent production restraints, particularly in Tangshan, a positive for steel prices in China, though it might put pressure on iron ore prices in the near term.

* Outlook: Flats appear to be faring better; we keep an eye on demand revival in China. We remain positive on an improving demand outlook in China besides expanding spreads in India. As a result, we turn optimistic on the ferrous space with JSPL (TP: Rs750) and Shyam Metalics (TP: Rs570) as our key picks. We also prefer Tata Steel (ADD; TP: Rs120) and APL Apollo (BUY; TP: Rs1,375).

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