SAIL to Tata Steel: Why steel stocks are skyrocketing — explained

Stocks to buy today: Steel stocks are on fire these days. In last one month, steel major Steel Authority of India Limited or SAIL share price has surged around 11.50 per cent, Shyam Metalics shares have ascended to the tune of 18 per cent whereas Tata Steel stock price has appreciated more than 5 per cent in this period. In last one month, JSW Steel share price has surged around 14 per cent. So, most of the quality steel companies in India have delivered stellar return to its shareholders.

According to stock market experts, demand for steel has risen in post-pandemic period while supply of the metal has further gone down creating demand-supply constraint for metal companies. Apart from this, recent Russia-Ukraine crisis has further worsened the steel supply for steel maker companies globally. As Indian companies have a buffer stock of the metal, market is expecting strong quarterly numbers from the steel manufacturing companies. They are expecting this win win situation for export-oriented steel maker companies to continue as Indian companies operate at the lower end of the global cost curve due to lower labor and iron ore costs compared to other countries.

Highlighting the reason for rise in steel stocks in India; Santosh Meena, Head of Research at Swastika Investmart Ltd said, "There has been a shortage of Steel post-pandemic, which skyrocketed the steel prices due to supply chain disruptions; this has been further exacerbated by Ukraine War. This will ensure that steel prices are going to stay elevated in the medium term, thus improving the profitability of steel companies. Domestic steel companies are well-positioned to benefit from multi-year high prices due to structural advantages, as they operate at the lower end of the global cost curve due to lower labor and iron ore costs compared to other countries."

Santosh Meena said that China is on a serious path of decarbonization and focusing on reducing steel production & exports, providing a good impetus to participate in the rising global export opportunity to domestic companies, another point to note is that Indian steel demand is poised to grow due to the revival of infrastructure, construction and manufacturing sector, thus leading to a new economic and commodity growth cycle for India.

Expecting strong quarterly numbers from steel manufacturer companies; Ravi Singhal, Vice Chairman at GCL Securities said, "Due appreciation in steel prices Indian companies are expected to get better business in international market as out labour and raw material cost is lower compared to global peers. So, export-oriented steel manufacturer companies may give strong strong numbers in upcoming result season."

Asked about the steel stocks that one can think of buying in current market scenario; Ravi Singhal of GCL Securities said that SAIL, Tata Steel, JSW Steel could be a better option if someone is looking to buy a steel stock.

Batting in favour of Jindal Steel stocks; Santosh Meena of Swastika Investmart said, "Jindal Steel & Power can be a good stock to ride the steel commodity bull run. There is good growth visibility, the company has the lowest Net Debt to Equity ratio in the industry, backward integration and capacity expansion make this company a good buy at CMP." He said that Jindal Steel is in strong bullish momentum and it is continuing this momentum followed by a breakout of the bullish flag formation that may lead the stock to move further northward.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.