InvestorQ : What has been the reason for the phenomenal gains made by steel companies like Tata Steel, JSW Steel and Hindalco in India?
Arusha Ray made post

What has been the reason for the phenomenal gains made by steel companies like Tata Steel, JSW Steel and Hindalco in India?

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7 months ago
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Metal stocks in the steel and aluminium industry have had their time in the sun in the last 1 year with most steel stocks doing phenomenally well. The rally in steel stocks was largely driven by a bounce in demand for steel and other metals from China as the economic recovery kicked in.

In fact, the major steel manufacturers like Tata Steel and JSW Steel are on course to ensure the best returns on the BSE metal index in the last decade. Not only has steel demand revived but even the price of steel has gone up sharply in the last few months leading to outperformance by steel stocks. Steel index has surged 33% in 3 months flat.

In a sense, metal companies are in the midst of an earnings up-cycle after two years of consistent downgrades of steel companies. For example, this upswing in steel demand and price has resulted in 70% returns on Tata Steel since October 2020. This enthusiasm was largely driven by the sale of its Dutch unit, although Corus still remains an overhang.

Analysts are of the view that Indian steel capacity is capitalising on an all-round global shortage of steel even as other global manufacturers are struggling to handle the supply chain dynamics to maintain supply lines. Apart from Chinese demand, there has also been a surge in demand as Indian government invests heavily in infrastructure.

Apart from the demand side story, there is also an input cost story. Steel prices soared on the back of demand making sharp revival as well as a sharp spike in iron ore costs. There has been shortage of supply from the two principal iron producers in the world; Brazil and Australia and that has resulted in the price of iron ore spurting above $170 a tonne.

In India, the spot prices for Indian hot-rolled coil steel or HRC and aluminum are about 20% above previous quarter’s average. This has had a salutary impact on margins. It is not just steel but even copper and aluminium prices have rallied sharply in the last quarter making it an all round rally in ferrous and non-ferrous metals.

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