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Last Updated : Nov 28, 2019 12:46 PM IST | Source: Moneycontrol.com

Metals stocks rally on possible price hike, budding US-China trade talks

Tata Steel, JSPL and JSW Steel would benefit from a restocking as prices recover, the brokerage feels.

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Metals stocks rallied 1-3 percent on November 28 amid likely hike in prices and positive vibes from US-China trade talks.

JSW Steel, Tata Steel, Jindal Steel & Power, SAIL etc gained 1-3 percent with Nifty Metal index itself rising around a percent.

The Metal index has been on buyers' radar this week, up 4.5 percent in the current week and around 8 percent in a month especially after rising hope that trade deal between world's largest economies US and China could be signed next month.


China remains a vital market for steel production and export.

In addition, Indian companies are likely to hike prices for both flat & long products in December by $7-15 per tonne, Credit Suisse said, adding October was the sixth monthly YoY decline of ex-China steel availability.

Tata Steel, JSPL and JSW Steel would benefit from a restocking as prices recover, the brokerage feels.

Domestic hot-rolled coil (HRC) prices, on average, have risen by Rs 265 per tonne this week with all the major markets reporting price hikes of Rs 200–500 per tonne. On the exports front as well, there is a respite as export price to Vietnam rose to $448 per tonne — the highest in past 2.5 months.

Edelweiss said going ahead, it sees further tailwinds as their channel checks indicate that: i) after a salubrious November, steel mills are again contemplating a price hike of Rs 500–1,000 per tonne in December 2019; and ii) some domestic companies have booked export orders for January 2020 at $470 per tonne (5 percent higher than current level).

However, spreads still remain in the lowest decile over the past five years though there is some respite from higher prices on the one hand and decline in coking coal prices on the other, it added.

Current domestic raw materials spread is up to $ 1,500 per tonne from the bottom at Rs 21,615 per tonne.

Post-price hikes, domestic HRC price are still about Rs 1,000 per tonne below the import parity level for South Korea and Japan. However, unlike China, South Korea and Japanese prices have not moved up—remaining static at $415 per tonne for the past six weeks.

"If the contemplated price hike in December materialises, it might lead to an influx of imports. Furthermore, in the absence of a tangible pickup in domestic demand, domestic flats producers such as Tata Steel and JSW Steel are resorting to higher exports," Edelweiss said.

In fact, India has been a next exporter for the past three months, and exports as a percentage of production have gone up to 12–13 percent from merely about 5 percent earlier.

Currently, Indian export prices for Vietnam (the largest export destination for India) are competitive; however, this might change if Japanese and South Korean export prices do not increase in tandem with global peers, said the brokerage.

After outperforming global peers in the past one month, the ferrous sector is at an interesting point, it feels. While the much-needed price hike has infused optimism, it believes the revival of domestic demand is critical to sustaining/improving margins.

Edelweiss maintained its buy call on JSPL and hold call on Tata Steel and JSW Steel. It retains reduce rating on SAIL.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Nov 28, 2019 12:46 pm