The BSE Metal index on Thursday soared 4.4 per cent extending this month’s run to 11.5 per cent. Shares of steel companies have been on a tear in recent months, underpinned by a sharp rally in steel prices. The price of Asian flat hot rolled coil (HRC) has shot up more than 20 per cent while that in Europe has gained over 40 per cent in the current calendar year.
The gauge for metal company stocks has risen 41 per cent this year. In comparison, the benchmark Sensex is up just 4 per cent.
The BSE Metal index was largely flat in March as steel prices had softened around the Chinese New Year. However, with prices once again headed northwards, investors have begun to pile on to metal company stocks.
“The post-China rally in Asian steel prices has not only eased concerns on near-term sustainability of Indian prices but now provides room for latter to rise more. We upgrade FY22-23 EBITDA for Tata Steel and JSW Steel by 2-7 per cent. If Indian/EU spot steel prices sustain, we see further 66 per cent/30 per cent upside to FY22 EBITDA for TATA/JSTL, free cash flow yield of 28 per cent/6 per cent and net debt falling 30 per cent/8 per cent in the year. Upsides are even higher if Indian steel prices converge with imports,” said Jefferies in a note earlier this week.
Shares of JSW Steel rose 9.25 per cent to end at a fresh all-time high of Rs 615. Jindal Steel and state-owned Steel Authority India (SAIL) rose over 6 per each.
Shares of Tata Steel rose 4.9 per cent to end at a new record high of Rs 918—surpassing its previous all-time high made in 2008. The company’s market cap also surpassed that of group firm Tata Motors.
“We believe metal stocks has more room to rally despite sharp outperformance vis-a-vis Sensex in FY21,” said domestic brokerage Centrum in a note.
“Demand uptick across economy post Covid-19 outbreak, reflected by manufacturing PMIs; China’s restriction in production owing to pollution, possibility of lowering export rebates on HRC from 13 per cent in order to discourage exports and meet in-house demand and China’s non-integrated producers’ gross margins marginally above last 10-year average only recently despite steel price hike due to high coking coal and iron ore prices,” are some of the positives listed by the brokerage.
Analysts say the strong interest in shares of steel stocks will help companies reduce debt which will act as a cushion if the cycle turns negative.
Interestingly, the BSE Metal index is still below its record high of almost 20,000 made in December 2007.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.