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NEW DELHI : Steel stocks have seen a strong recovery from the lows of February—when the Russia-Ukraine war broke out—with the demand-supply balance favouring Indian companies.

The worsening geopolitical crisis has resulted in lower steel supplies from Russia and Ukraine to Europe, which, in turn, led to a rise in international prices and opened up export opportunities for Indian manufacturers.

Rising domestic steel prices and softening coking coal prices also augur well for the profitability of Indian steel manufacturers.

Domestic steel prices are rising during the peak construction season before the monsoon sets in. According to an 11 April report by Nomura, hot-rolled coil prices in India rose by 5,280 a tonne in the first few days of April compared with the average price in March. Steel prices rose slower in the March quarter. Average steel price realization is likely to have increased 2-3% sequentially, or 2,000-2,500 a tonne during Q4, led by back-end price hikes in the domestic and export markets, according to analysts of Kotak Institutional Equities.

Domestic steel prices are also being supported by rising prices in China, which will help reduce risks of low-cost import. According to the Nomura report, China steel prices have risen 5.3% (in dollar terms) month-to-date in April versus the average price of March on expectations of rising demand led by easing covid-19 restrictions. This resulted in better construction activities and easing supply chain. Export prices, according to Nomura, have also risen from $870 per tonne to $920 a tonne week-on-week.

Chinese steel prices are expected to remain firm. “We expect the momentum in Chinese steel prices to continue in the wake of the government’s thrust on infrastructure projects," said analysts at Edelweiss Securities Ltd. Meanwhile, falling coking coal prices should provide better support to profitability. The steep rise in coal prices in Q4 led to a 9-10% rise in the cost of production for steel manufacturers, said PhillipCapital.

The cooling of coal price bodes well for steel manufacturers. Analysts at Motilal Oswal Financial Services Ltd (MOFSL) said the prices have fallen due to a slowdown in China and the easing of the La Nina weather event in Australia. Correction in the prices of premium hard coking coal continued. As per the MOFSL report, coking coal prices fell 10.7% week-on-week to $507 a tonne, down 28% from the highs of $704.

Declining coking coal price is good news for both steel companies and consumers, said Kamlesh Bagmar, deputy head, research, Prabhudas Lilladher.

According to Edelweiss analysts, steel prices will moderate with lower coking coal prices, but the spreads have bottomed out. Besides, improvement in domestic demand will aid earnings, they said.

Among major gainers on stock exchanges, JSPL is an outperformer. Analysts at Centrum Stock Broking Ltd said winning three coal blocks at recent auctions is a long-term positive for JSPL. It not only provides assured supply, but is also remunerative, they said.

Tata Steel India’s operations have backward integration for the majority of its raw material needs. SAIL and JSW Steel, on the other hand, will benefit from declining coal prices.

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