Domestic steel prices are heading north, aiding the sector's earnings prospects. The spot price of hot-rolled coil (HRC) hit a four-year high in September, supported by strong demand from the automotive sector. Rebar prices, which tend to face greater pressure in a seasonally weak second quarter amid muted construction activity, have risen as maintenance shutdowns have tightened supply.
Domestic HRC prices reached ₹62,000 per tonne for the week ended 4 September, up 25% year-on-year and about 6% higher than June figures, according to Nomura Global Markets Research. Rebar prices at ₹57,000 per tonne are up 20% year-on-year, but marginally lower than June.
Prices are running ahead of management guidance as companies under the coverage of Antique Stock Broking had guided for Q2FY27 net sales realization to soften by ₹800-1,500 per tonne on flat products (HRC) and ₹7,000-8,000 per tonne on long products (rebars), sequentially.
Recovery in global steel prices has also rubbed off on domestic prices. European HRC prices are up about 24% year-on-year to €710 per tonne (about ₹77,913). This should buoy Tata Steel's earnings, given its operations in the Netherlands.
European prices are being supported by the Carbon Border Adjustment Mechanism, which imposes a tax on imports based on their emissions intensity, as well as a reduction in duty-free import quotas. However, higher imports from China remain a risk, as Chinese steel prices have fallen below domestic prices even after accounting for India's 11.5% safeguard duty.
Europe’s environmental compliance costs would have a very limited impact on domestic producers, as India's exports to Europe are low. The loss is more than compensated for by the imposition of safeguard duty, which is keeping imports in check.
Demand growth keeps mills running hot
Nonetheless, prices are likely to remain firm on robust demand. In July, domestic steel demand grew 6.8% year-on-year, according to data by the Joint Plant Committee. In the first four months of FY27, demand grew 7.9%, following 7.7% growth in FY26, supporting healthy capacity utilisation for steel mills and improving operating leverage.
Kotak Institutional Equities expects utilizations to remain above 90% over the medium term, led by robust demand, with a 7% CAGR over FY26-29, outpacing capacity additions.
On the flip side, imported coking coal prices rose by about 13% in June amid supply disruptions at key producers, geopolitical tensions, and a mine accident in China. At the same time, iron ore prices remain benign with NMDC reducing prices by ₹200 per tonne in August, its second price cut in Q2FY27.
Prices are now about 7% lower than in June. Firm steel prices and soft iron ore costs have lifted spot HRC gross margin to ₹37,085 per tonne, according to Nomura Global Markets Research, ₹815 per tonne higher than the Q1FY27 average, boosting steel producers’ earnings outlook.
So far in this year, steel stocks have delivered mixed returns. Steel Authority of India Ltd (SAIL), JSW Steel and Jindal Steel have gained 26%, 11% and 7%, respectively. Kotak believes that SAIL and Jindal Steel should benefit the most from the recent recovery in long steel prices. Tata Steel is up a mere 2%, weighed down by environmental compliance issues at its operations in the Netherlands. These shares trade at 6.5-11.1x FY27 enterprise value-to-Ebitda multiple, according to Bloomberg data, with SAIL at the lower end and JSW Steel at the upper end.
For now, revival in HRC and rebar prices aids near-term earnings visibility. But downside risks linger even as production rationalization in China and resilient domestic demand are positive. Antique cautions that new capacities of domestic companies ramping up and/or coming online in the short-to-medium term (approximately 15 million tonnes per annum of new crude steel capacity is expected by FY28) could limit the upside potential for domestic steel prices.