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HRC prices in the traders’ market fell by Rs1,350/te WoW mainly due to subdued demand, particularly for flats. Besides, the uncertainty around price hikes in Apr’23 has resulted in destocking at dealers’ end, leading to the price decline. Regionally, prices in South-East Asia also slipped by US$5-10/te on an average, though certain steel players continue to raise prices for Apr/May’23 sales. Secondary longs segment in India has fared relatively better with prices increasing by Rs800/te WoW, as demand in long sector has been better compared to flats. In China, despite better financial indicators than expected, we await signs of demand pick-up. Recently, PBOC injected more than CN¥850bn of net liquidity into
the financial system to boost growth. Demand optimism in China keeps us positive on the ferrous space. Maintain BUY on JSPL (TP: Rs750) and Shyam Metalics (TP: Rs570), with ADD on Tata Steel (TP: Rs120) and BUY on APL Apollo (TP: Rs1,375).

? HRC prices decline in domestic market though spreads improve: Domestic HRC prices in the traders’ market fell by Rs1,350/te WoW to Rs58,400/te mainly due to relatively subdued demand compared to longs in Q4FY23. Our channel checks indicate there has even been some destocking in the domestic market ahead of steel price revision by the mills, indicating there are expectations of prices merely getting rolled over. On the cost front, there is some respite as global coking coal prices have corrected by a further US$13/te to US$288/te (lowest since Jan’23). As a result, spot spread persists at Rs26,600/te – highest in past three months. Furthermore, export realisation is at par with domestic for the first time in FY23, resulting in steel mills being increasingly market-agnostic. Currently, domestic mills are more interested in exporting to Europe/UAE where realisations are better. That said, we might see exports to the UAE coming off in Apr’23 owing to the month of Ramadan when demand is weak. Longs prices in the secondary market have been better with an increase of Rs800/te WoW owing to relatively better demand.

? Pinning hopes on demand recovery in China: While credit data is supportive of steel consumption growth in China, demand has thus far stayed subdued. Last week, PBOC injected significant liquidity in the market through daily open market operations (CN¥352bn) from 21st-29th Mar’23, and lowering the ‘required reserve ratio’ (RRR) (CN¥500bn) on 27th Mar’23. The liquidity injection has been higher than market expectations and implies that credit growth is likely to remain strong in Mar’23, even after robust growth in the first two months of FY23. Meanwhile, the YoY drop new home prices in China’s 70 major cities has slowed down further to 1.2% in Feb’23 (Jan’23: 1.5%) as the government takes measures to support the property sector. On a monthly basis, new home prices rose 0.3%, the most since Jul’21 following the 0.1% rise in Jan’23. We believe supportive credit and real estate policies are likely to spur growth in the seasonally strong Q2 (Apr-Jun).

? Outlook: China’s outlook getting better; tepid domestic demand comes as a surprise. We remain positive on an improving demand outlook in China besides expanding spreads in India. However, the subdued domestic demand for flats is a
cause of concern, though enough opportunity exists in export market where realisation too is currently better. As a result, we retain our positive view 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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