2023 in review- Steel manufacturers ride on strong domestic demand momentum. Steel prices influenced by global trend.
- 2023 in review- Steel manufacturers during 2023 benefitted from strong double digit demand momentum in the domestic arena. Domestic steel price improvement hinges on global prices that have improved in last two months. Analysts at Jefferies have a positive stance on Indian metals & mining space.
Indian Steel producers as Tata Steel , Jindal Steel and Power , JSW Steel and Steel Authority of India have seen their share prices rise 9-28% year to date during 2023. The gains have been led by strong steel demand in the country even though steel prices and raw material prices saw regular volatility.
The steel demand remained exceptionally strong led by Government’s spending on Infrastructure during 2023. The steel prices, however, saw volatility under the influence of international steel prices. As rising interest rates led to weak demand in the developed countries, the China demand also disappointed despite removal of Covid related cubs. The weak China demand meant more exports out of China which pushed the international steel prices further down. The raw material prices also saw volatility.
Analysts at Jefferies India Pvt Ltd in their recent report said that “2023 was a tough year for metals due to the combination of Fed rate hikes, a strong dollar, an underwhelming China reopening, weak demand in Europe, and cost inflation”
The positive is that steel demand in India continues to remain strong as we exit 2023. The steel demand is regularly being supported by Governments spending even though private Capex is yet to see significant uptick say analysts.
The key positive also is that international steel prices also have started to improve from lows. Asian flat (Hot Rolled Coil) steel price, after falling 22% over March-October has risen 8% in the last 2 months, suggests Jefferies Data. The Jefferies analysts say that Asian steel spread, however, is still near the lowest level in a decade, and they believe the risk is on the upside.
As rise in Asia and international steel prices is positive, the same also means that Indian steel price premiums to import price have also declined and the risk of rise in imports is reducing, The imports into India had risen during first seven months of FY24 said analysts .
The rise in steel prices however has been led by rise in raw material costs. Iron-ore Prices Ex China that were at Close to $105 a tonne in August have moved up to $135 a tonne level now. The Coal prices too have risen . Hence China steel prices too have risen. As per Antique Stock Broking at start of December, spot Chinese export HRC prices at $ 555 per ton had risen 5.7% month-on-month while Chinese domestic steel prices had risen 5.2% month on month to $ 561 per ton. Chinese EBITDA spreads continue to remain negative, providing support to prices they said.
The trend of rise in steel prices is positive for Indian steel prices and lower Imports too. The margins though may be slightly impacted.
Jayanta Roy, Senior Vice-President & Group Head, Corporate Sector Ratings, ICRA said that we are exiting 2023 on a strong double digit demand growth momentum. . The domestic steel price movement however is hinges on global steel prices
Jefferies global metals team is cautiously optimistic for 2024 with macro backdrop turning more positive in the developed world and expectation of stability in China. They have a positive stance on Indian metals & mining space.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions
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