India's Steel Companies Leading Metals Towards Best Rally In Decade

The country’s steel makers are on course to leading the BSE’s metal index to its biggest quarterly gain in more than a decade, on the back of recovery in consumption and surge in prices across the globe.

The S&P BSE Metal Index has surged by around a third so far in the three months through December, jumping the most since the quarter ended June 2009.

Metal companies are in an earnings upcycle after two years of downgrades, and steel demand as well as pricing have improved sharply, according to a Jefferies Group LLC report this month.

Shares of the country’s oldest steel mill, Tata Steel, have climbed more than 70 per cent since October 1, clocking the firm’s best performance in more than 11 years thanks to higher steel prices after it entered into talks for sale of its Dutch unit.

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Steel Authority of India has rallied around 75 per cent, while JSW Steel and Jindal Steel & Power have jumped more than 30 per cent on the bourses.

“India-based steel capacity is capitalising on a global shortage of steel and the inability of the other global manufacturers to supply,” said Saurabh Bhatnagar, partner and national leader for metals and mining at EY India.

“While there has been a continuous increase of demand from China, on account of the government-aided growth and rising focus on sectors such as infrastructure and construction, the revival of demand from India is pushing steel prices even higher.”

Steel prices have soared on the back of reviving demand, especially in China, and also due to iron ore bursting past $170 a tonne on concerns of supply shortage in Brazil and Australia, the top exporters.

Prices are likely to remain at these levels until supply to China normalises to pre-COVID levels, Bhatnagar said.

“Local steel price increases are purely a reflection of import parity pricing,” according to Ritesh Shah, an analyst at Investec Capital Services India.

“We have been positive on the steel cycle, that is, steel pricing and profitability,” since March and continue to remain constructive on the profitability of steel mills into 2021, he said.

Spot prices for Indian hot-rolled coil steel and aluminum are about 20 per cent above the previous quarter’s average, which has further improved the earnings outlook for metal companies, Jefferies said.

Copper prices in London have also rallied around 17 per cent this quarter.

Aluminum maker Hindalco Industries and iron ore miner NMDC have risen more than 30 per cent so far during the quarter, while Vedanta brought up the rear with a near 10 per cent gain after a failed delisting bid and concerns over upstreaming of its cash to parent.

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