IGI Logo

We estimate the operating profits across our metals coverage universe to decline by ~6% QoQ, driven by lower realisations – average domestic HRC prices came in at INR 49.5k/tn, down ~INR 2.2k/tn compared to 1Q while longs declined significantly to average ~INR 48.3k/tn in 2Q, down ~INR 7.5k/tn sequentially. This is expected to be partially offset by USD 5-10/tn reduction in P&L coking coal consumption cost, as guided by major companies. NMDC announced a price cut of INR 600/tn and a price hike of INR 400/tn in Jul’25 and Aug’25 respectively. Volumes are expected to trend up in 2Q given lower base in 1Q (JPC consumption run-rate data for JulAug’25 shows a growth of ~9% YoY). Consequently, on a net basis, Indian ferrous players are likely to witness an EBITDA/tn contraction in 2Q with longs players like JSP expected to witness significant reduction to the tune of ~INR 4k/tn+ while flats players like Tata Steel and JSW Steel are expected to witness contraction to the tune of ~INR 1.5k/tn. Chinese exports continue unabated, up 10% YoY at 77.5mn tonnes in Jan-Aug’25, even as the Indian market remains ringfenced with 12% safeguard duty. We anticipate a jump in 2H spreads driven by a) USD 22/tn rebound in China domestic HRC prices in 2Q compared to 1Q, b) Indian government plugging loopholes in safeguard duty, c) increased visibility on import duty from 200 days to 3 years, and d) 2H being a seasonally strong period consumption-wise. Despite raw material prices being subdued with spot alumina price at ~USD 329/tn (down from peak of USD 660/tn in 4QFY25) and Richard Bay Index (depicting thermal coal prices) at 85 (down from ~90 in 1QFY26), aluminium prices have improved in 2QFY26. Consequently, the India business of non-ferrous players is expected to witness margin expansion in 2QFY26. Hindalco’s Oswego plant faced a fire incident and is expected to face a production loss in 3Q, as highlighted by Ford. JSPL (lowest leverage, highest volume growth), Hindalco ((resilient performance in the India business, enhanced raw material security) and TATA remain our top picks in the metals space.

* China steel prices trend upwards in 2Q: China domestic HRC prices witnessed an n uptrend in 2Q with spot prices at USD 470/tn, higher by USD 22/tn compared to 1Q driven by anticipation of policy support. China rebar prices corrected to USD 449/tn after trending up in Aug’25 (averaging USD 477/tn), down USD 17/tn compared to 1Q. China’s steel exports for CY24 surged to 111mn tonnes (up ~22% YoY) and exports for Jan-Aug’25 came in at 77.5mn tonnes (+10% YoY), thereby further weighing on global steel prices. China recently announced a domestic steel production cut; any meaningful implementation of this measure could support prices. Global steel-making raw materials witnessed an uptrend with coking coal prices currently trading at USD 190/tn, up ~USD6/tn compared to 1Q average of USD 184/tn. Iron ore CFR prices have surged to USD 96/tn currently, up 5% compared to 1Q average.

* Indian steel players likely to witness lower spreads in 2Q: Realisations of Indian steel players are expected to witness a downtrend in 2Q on the back of falling steel prices. Average domestic HRC prices came in at INR 49.5k/tn, down ~INR 2.2k/tn compared to 1Q. Longs prices declined significantly to average ~INR 48.3k/tn in 2Q, down ~INR 7.5k/tn sequentially. NMDC announced a price cut of INR 600/tn and a price hike of INR 400/tn in Jul’25 and Aug’25 respectively. Steel companies have guided for a ~USD 5-10/tn decline in coking coal consumption cost for 2Q. Consequently, Indian ferrous players are likely to witness an EBITDA/tn contraction in 2Q with longs players like JSP expected to witness significant reduction to the tune of ~INR4k/t+ while flats players like Tata Steel and JSW Steel are expected to witness contraction to the tune of ~INR1.5k/t. Working capital requirements are likely to offer some relief as steel / raw material prices trend down, leading to better chances of net debt reduction. JSPL (low leverage, high volume growth over the next few years) and Tata Steel remain our top picks in the ferrous space

* Non-ferrous India business expected to witness margin expansion: Despite raw material prices being subdued with spot alumina price at ~USD 329/tn (down from peak of USD 660/tn in 4QFY25) and Richard Bay Index (depicting thermal coal prices) at 85 (down from ~90 in 1QFY26), aluminium prices have improved in 2QFY26. Consequently, the India business of nonferrous players is expected to witness margin expansion in 2QFY26. Hindustan Zinc is also expected to witness better margins on the back of higher LME zinc prices during the quarter (up ~USD 160/tn QoQ in 2Q). Hindalco’s Oswego plant faced a fire incident and is expected to face a production loss in 3Q, as highlighted by Ford.

* Steel spot spreads to witness uptrend in 2H: We anticipate a jump in 2H spreads driven by a) USD 22/tn rebound in China domestic HRC prices in 2Q compared to 1Q, b) Indian government plugging loopholes in safeguard duty, c) increased visibility on import duty from 200 days to 3 years, and d) 2H being a seasonally strong period consumption-wise

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361