InvestorQ : Can I expect a turnaround in steel stocks like Tata Steel and JSW Steel this year?
Mitali Bhutta made post

Can I expect a turnaround in steel stocks like Tata Steel and JSW Steel this year?

9 months ago

It is estimates that integrated steel companies like Tata Steel and JSW Steel, among others, could return to profitability and earnings growth in the Sep-20 quarter. This is likely to happen on the back of higher domestic steel prices and lower input costs.

The steel sector could benefit from a sharp demand recovery in key consumption pockets like construction, automotive and consumer durables. Normally, the prices of hot rolled coils or HRCs is the lead indicator as they go into transport and construction.

Just in the last two months the domestic HRC prices were up by 15% and are actually now about 9% above pre-COVID levels. At the same time, the input costs for coking coal and iron ore have either fallen or remained flat.

Indian steel producers apparently have additional head room to hike HRC prices to $588 per tonne in September as compared to just about $468 per tonne in March this year before the COVID effect started to taper off.

Look at some of the numbers. SAIL registered an impressive 31% sales growth in Q2 compared to a year ago. This is despite the lockdown challenges. Also, the pick-up in economic activities and consequent demand across sectors is giving a boost to domestic steel demand.

Private sector major, Tata Steel has ramped up steelmaking and downstream operations to near March levels. It is already operating at 100% capacity utilization at all its plants. Tata steel actually increased crude steel production by 54% QOQ and 2% YOY to 4.59 MT and touched quarterly deliveries of 5.05 MT.

Even JSPL reported highest quarterly standalone sales at 1.93 MT during the Sep-20 quarter. JSW Steel’s crude steel output was almost flat at 3.85 MT.