Steelmakers set to lead India metals to best quarter in decade

(Image courtesy of JSW Steel)

India’s steelmakers are on course to leading the country’s metal index to its biggest quarterly gain in more than a decade, as consumption recovers and prices surge globally.

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 and pricing has improved sharply, according to a Jefferies Group LLC report this month.

Shares of the country’s oldest steel mill, Tata Steel Ltd., have climbed more than 70% since Oct. 1, clocking its best performance in more than 11 years on higher steel prices and after it entered into talks for sale of its Dutch unit. Steel Authority of India Ltd. has rallied around 75%, while JSW Steel Ltd. and Jindal Steel & Power Ltd. have jumped more than 30%.

“India-based steel capacity is capitalizing 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 Ernst & Young India.

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

Steel Authority of India Ltd. has rallied around 75%, while JSW Steel Ltd. and Jindal Steel & Power Ltd. have jumped more than 30%

Steel prices have soared on the back of reviving demand, especially in China, and as iron ore bursts past $170 a ton on concerns of supply shortages in top exporters Brazil and Australia. Prices are likely to remain at these levels until supply to China normalizes 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 Pvt. Ltd. “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% 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% this quarter.

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

(By Swansy Afonso)

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