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Low coal prices, the only silver lining

We maintain our cautious outlook on the domestic steel industry due to weaker-than-expected demand recovery post the festival season, subdued steel prices, limited export opportunities, and a lukewarm response to China's stimulus. The potential impact of actions by the newly elected US President, Donald Trump, may influence China's indirect metal exports, marring domestic demand and leading to aggressive export strategies. However, the domestic steel industry may benefit from lower coking coal prices and potential safeguard duty on steel imports. In contrast, we are positive on the non-ferrous sector, expecting higher aluminium and alumina prices and lower thermal coal prices to support near-term performance. Our top pick in the space is APL Apollo Tubes.

Ferrous – Lower cost to ease realization woes: After witnessing a QoQ drop in Q2FY25, efforts were made to raise steel prices in Q3FY25. However, while prices for long products recovered, flat steel prices were under pressure, primarily due to the absence of any relief from cheap imports and cautious buying. So, flat steel prices dropped in the range of 13-15% YoY and ~5% QoQ. Prices for long and semi-finished products fell in the range of ~3-4% YoY but rose in the range of ~3-5% QoQ.

Expect blended realization for Elara Steel universe to dip by INR 0-4,700 per tonne QoQ. We expect volume growth in the range of 3-12% YoY and ~1-6% QoQ across firms. YoY, EBITDA/tonne may contract by ~INR 850-4,300. However, QoQ, Jindal Steel & Power is likely to be the only company to post a QoQ improvement on EBITDA/tonne within our steel universe. For Jindal Stainless, we expect volume to grow ~13% YoY and ~2% QoQ, with a dip of ~16% YoY and ~2% QoQ in consolidated EBITDA/tonne.         

NMDC to report strong margin recovery on price hikes: NMDC’s sales volume is set to rise ~5% YoY and ~23% QoQ. In Q3FY25, it took two price hikes of: 1) INR 400 per tonne each for lumps and fines on 1 October, and 2) INR 600 per tonne for lumps and INR 400 per tonne for fines on 23 October. So, realization is likely to improve ~11% YoY and ~6% QoQ, leading to a rise in EBITDA per tonne by ~15% YoY and ~39% QoQ.   

Hindalco Industries – Firm aluminum price to mitigate impact of softer margin at Novelis: While aluminum prices softened QoQ in Q2FY25, it has scripted a strong recovery in Q3FY25, up by ~17% YoY and ~8% QoQ. Despite the expected rise in operating costs and muted performance of its subsidiary, Novelis, Hindalco Industries is expected to benefit from higher aluminium prices. Novelis is likely to report ~14% YoY and ~13% QoQ drop in EBITDA per tonne. So, while we expect consolidated EBITDA margin to improve ~240bps YoY, it may decline ~10bps QoQ.  

Mixed quarter for pipes: APL Apollo Tubes may report a strong volume growth of ~37% YoY and ~9% QoQ. Further, EBITDA per tonne may contract ~9% YoY but surge ~131% QoQ. For Ratnamani Metals and Tubes, expect revenue to grow by ~2% YoY and ~32% QoQ.

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