During March, BSE Sensex remained flat. Nevertheless, BSE Metal Index gained 4.6% as ferrous stocks like JSW and Tata Steel outperformed. The strong demand for steel and rising global steel prices have continued to drive the profitability of Indian steel manufacturers in FY21. Steel companies remain well-poised to report record margins in FY22, said IDBI Capital in its report.
Steel prices improve: During the month, Indian steel manufacturers increased HRC prices by Rs 2,000- 3,000/tonne (USD 27-41) to Rs 55,688/tonne. This was due to strong demand from end user industry. It is expected that China is likely to cut export rebate from 13% to 9%. Also, Chinese government is focusing more on the EAF route rather than the BOF route (the process of making steel). Indian mills are getting plenty of orders substituting Chinese order in the export business from Far East, Africa and Europe.
Steel stocks performance mixed: Amongst ferrous pack SAIL and JSPL remained flattish whereas Tata Steel gained 14% as Tata Sons increased stake in Tata Steel to 33%, also company plans to reduce gross debt by another Rs 120 billion in Q4FY21. JSW gained 19% as company closed out the acquisition of Bhushan Power and Steel (BPSL) for Rs 193 billion. With this JSW Steel has become the country's top steelmaker as it plans to add 3 million tonnes in Odisha. This would take its total capacity to 22 million tonnes. Also, it has commenced production of hot-rolled plates from the new 5 million tonnes hot strip mill facility at its integrated Dolvi plant. APL Apollo Tubes (a steel pipe manufacturer) sales volume for FY21 stood at 1.64 million tonnes compared to 1.63 million tonnes in FY20, despite Covid-19 disruption in FY21.
Iron ore prices rise: NMDC gained 13% as company raised price for Baila fines by Rs100/tonne, Baila lump by Rs250/tonnes to Rs 4,310/tonne and Rs 5,350/tonnes respectively. Company’s March'21 iron-ore production was up 66% YoY and 18% MoM at 4.57 million tonnes. Also, company plans Rs 30 billion capex and targets 42 million tonnes iron ore output in FY22.
Base metal stocks weak: Base metal prices were a mixed bag during the month. Zinc remained flat while lead fell 5%. Copper fell 3% as copper amid rising exchange inventories and signs of weakening demand from top consumer China weighed on sentiment. Aluminium gained 3%, however China is considering sale of about 500,000 mn tons of aluminium from state reserves to cool prices. Amongst non-ferrous pack Hindalco and MOIL fell 5% each and Hindustan Zinc fell by 9%.
Gold prices remain flattish: Gold price remained flat MoM to USD 1,708/ounce. While US dollar and bond yields remain key price determining factors, gold is supported by resurgence in virus cases, mixed economic data from major economies and selling pressure in Chinese equities.
Commenting on the outlook, IDBI Capital opined, "Looking ahead, the overall sentiment remains strong as Q4FY21 is traditionally a strong quarter for steel companies, mainly led by higher construction demand. We remain bullish on the overall steel cycle with JSPL and SAIL as our top picks. In the non-ferrous space, we prefer Hindustan Zinc and MOIL."
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