Steel stocks have witnessed a strong recovery since the lows of February.
Furthermore, the balance in demand and supply has favored Indian companies.
Additionally, dipping coking coal prices and rising domestic steel prices lay the ground for profits for Indian steel manufacturers.
Moreover, the depleting geopolitical crisis reduced European steel supplies from Ukraine and Russia.
The Ukraine war led to a rise in international prices, opening export opportunities for Indian manufacturers.
The rise in domestic steel stocks
As per a report by Nomura on April 11, hot-rolled coil prices soared by ₹5,280 a tonne in the first week of April, compared to the average price in March.
According to Kotak Institutional Equities analysts, average steel price realization rose by ₹2,000-2,500 a tonne during Q4.
Analysts believe back-end price hikes led to an increase in domestic and export markets.
Furthermore, the rising prices in China support domestic steel prices, reducing the risks of low-cost imports.
Edelweiss Securities Ltd analysts said, “We expect the momentum in Chinese steel prices to continue in the wake of the government’s thrust on infrastructure projects.”
As per the Nomura report, China’s steel prices rose 5.3% (in dollar terms) month-to-date in April.
Additionally, according to Nomura, export prices soared from $870 per tonne to $920 a tonne week-on-week.
Moreover, dipping coking coal prices should support steel stock recovery.
PhillipCapital said the rise in coal prices in Q4 led to a 9-10% rise in the cost of production for steel manufacturers.
According to the MOFSL report, coking coal prices fell 10.7% week-on-week to $507 a tonne, down 28% from the highs of $704.
The decline in coking coal prices boded well for steel companies and consumers, says deputy head, research Prabhudas Lilladher, Kamlesh Bagmar.
The rise in demand-supply favors Indian companies
Edelweiss analysts said steel prices would moderate with lower coking coal prices, but the spreads have bottomed out.
Besides, improvement in domestic demand will aid earnings.
JSPL stood as an outperformer among major gainers on the stock exchanges.
As per Centrum Stock Broking Ltd analysts, winning three coal blocks at recent auctions is a long-term positive for JSPL.
It not only provides assured supply but is also remunerative.
Additionally, Tata Steel India’s operations have a significant backup for most of its raw material needs.
Nevertheless, SAIL and JSW Steel seem to benefit from the decline in coal prices.
The Russia-Ukraine war inadvertently led to an international price hike, leading to rising in exports by Indian steelmakers.
The steel stock recovery and rise in demand and supply have particularly favored Indian companies.
Furthermore, domestic steel prices rose during the peak construction season before the monsoons visit.