Tata Steel Ltd, JSW Steel Ltd, Steel Authority of India Ltd saw their share prices rise over 1% in morning trade on Wednesday. The share prices of Jindal Steel and Power Ltd, however, remained muted. The analysts say that while the demand for steel in the country remains strong supported by government infrastructure spending and supports the investor’s confidence, however softening of steel prices affected by festive season and rising prices of raw materials are key risks to near-term earnings prospects. .
The recent channel checks of Motilal Oswal Financial Services Ltd suggest that steel prices have continued to soften in the country. Analysts at Motilal Oswal said that although some Tier-I mills rolled over their steel prices for Dec’23, the spot flat steel prices were down 1% week and 3% month-on-month. ₹55,000 a ton. long steel continues to command a premium over flat steel and is down 1% week over week to ₹55 300 ton.
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Steel prices, which continued to improve even during the seasonally weak September quarter, however eased as the festive season began in October. As labor availability took a hit, pre-festive season inventory build-up, state elections and limited construction activities in North India subdued demand for metals, analysts said. Although the expectations of price increase remained high after the end of festival season, they still remain elusive.
In the meantime, the prices of raw materials are rising. The international iron ore prices, which were near $105 per ton, CFR China have risen and are close to $130 per ton. Looking at the rising international iron ore prices, country’s largest iron ore producer NMDC has also taken price hikes. The same could put pressure on profitability.
Steel spreads are currently at their lowest levels, and market participants and sellers are closely monitoring the demand situation and price indications provided by Tier-I mills for December’23 deliveries, analysts at Motilal Oswal Financial Services Ltd said.
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During Q2FY24, most companies underperformed consensus estimates mainly due to negative price-cost impact, analysts at ICICI Securities said. The Key points during Q2 were that volume growth for JSW Steel, SAIL and APL Apollo was driven by capacity increase, aided by domestic steel consumption growing 14.8% YoY in H1FY24. The Ebitda per ton (earnings before interest tax depreciation and amortization) for steel companies was significantly higher year after year due to no export tax, but lower consecutively.
Going forward on the profit front, analysts at ICICI Securities expected mixed performance among companies, as the cost-cost of coking coal growth can range from $10 per tonne for Tata Steel to $50 per tonne for SAIL.
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Updated: 29 Nov 2023, 12:38 IST