Tata Steel, JSW, JSPL, SAIL share prices see impact of declining steel prices: Softer input costs to benefit over time.

Tata Steel, JSW Steel, Jindal Steel and Power, Steel Authority of India share prices have declined 5-12%  during last one week .

While the market sentients remain weak, the correction in share prices also has been led by a regular decline in steel prices. 

Channel Checks by various Brokerages suggest Steel prices in the country have dipped to multi- month lows

BNP Paribas Channel checks suggest that the domestic hot rolled coil (HRC) prices that have been falling since September 2023, reached ₹52,700 a tonne during the week ending March 6, 2024, down   ₹900 a tonne week over week. The weekly average price also had dropped to its lowest point since December'2023.

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The pressure is being exerted by falling international steel prices amidst tepid demand. More over demand in China, the world's largest consumer of commodities has been declining leading to higher exports from China. 

China Domestic HRC prices decreased by $12 a tonne month-on-month and $ 6 a tonne week-on-week for the week ended 8-March 2024. Since October 23, the monthly average price has not been this low. Some decline in Coking coal and iron-ore prices is supporting profitability. Nevertheless with support to profitability coming from declining commodity prices, further down side in steel prices in China cannot be ruled out, said analysts.

The steel exports from China already rose 30% year-on-year to 16 million tonne (Mt) over January-February 2024, much higher than 12.2mt over January-February 2023, suggested BNP data. This is the highest level of exports for the two months combined since 2016 said BNP analysts.

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Positive is that domestic steel demand in India remains strong. India steel demand growth robust at 9% y-y in February'2024 as per BNP data 

Nevertheless higher inventory and lower buying interest weighed on domestic long product prices, and lack of significant import relief, restricted export opportunities, and increased supply from JSPL's new hot strip mill and NMDC's steel plant put further pressure on domestic flat prices, said analysts at Elara Securities India Pvt Ltd.

The steel demand that has been strong, nevertheless may see some volatility during the coming months as election season kicks in. ICRA already has reduced its demand growth expectations to 7-8% in FY25. All this indicates challenges ahead for steel manufacturers

Domestic steel prices are down 4-5% on a quarterly basis in 4QFY24 and 8-9% in 2HFY24, as per analysts at Kotak Institutional Equities. Though the raw material prices are on decline and recent raw material price weakness is likely to be positive for  costs, however the benefits will accrue with lag as steel manufacturers must be holding higher price inventory. Kotak analysts expect steel margins to contract in 1HCY24. The fall in sea bourne iron-ore prices however is positive for JSW Steel, Jindal Steel and Power . Analysts at Kotak thereby prefer JSW Steel, JSPL over over integrated producers such as SAIL, Tata Steel and NMDC.

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