The Indian steel industry has grown up nearly 9 percent in the current market rally in the calendar year 2017.
Brokerage house JP Morgan expects demand to revert slowly on the back of tightening demand-supply dynamics, slow capacity additions and those who add capacity (Tata and JSW) would see their next wave coming only after 3 years.
"As incremental demand continues to outstrip capacity, we expect industry utilization to hit 86 percent by FY21, a ten-year high,” it added.
With China cutting capacity and a material surge in Chinese exports unlikely, the broking house expect domestic prices to remain firm, closer towards a floor price of USD 489/t.
According to the brokerage house, Tata and JSW offers material upside even from current levels and are positioned to benefit from rising local premiums.
It also remained positive on steel sector and steel companies is going to re-rate from here given the multi-year earnings visibility and improving industry fundamentals.
The S&P BSE metal index was trading down 0.5 percent at 10931, while steel companies including JSW Steel and SAIL were trading lower between 0.5-1.5 percent intraday Tuesday.
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