With signs of recovery in the US-China trade relations, the metal space has already started to gain momentum.
Most brokerages are positive about the metal space and believe 2020 to be a good year for the sector. With signs of recovery in the US-China trade relations, the metal space has already started to gain momentum. The World Steel Association estimated global steel demand to grow at 1.7 percent in CY20E with a higher contribution of emerging and developing economies, excluding China.
Edelweiss's report suggested that as per CISA’s forecast, in CY19, China’s crude steel output will grow 7 percent YoY to 994mt— the highest-ever level— and steel consumption will grow 5 percent YoY. While demand has maintained momentum, China has put effective controls in place on additional steel production capacity. Hence, with recovery in demand and limited supply, steel prices have recovered from the trough in the recent past.
According to the World Steel Association, after a better-than-expected CY19E, global steel demand will grow a mere 1.7 percent in CY20E with a higher contribution of emerging and developing economies, excluding China, said the report.
In fact globally, iron ore and coking coal prices have corrected more than 20 percent over the past 2 months, offering pure steel manufacturers the opportunity to garner higher profitability.
The firm noted, “Expect overall steel production to grow 6.5 percent in FY21. With an expectation of demand recovery and improvement in global steel prices, domestic hot-rolled coil (HRC) prices have started rising sharply — Rs 37,000/tonnes on average currently.”
The report expected rising spreads to spur profitability. With an increase in domestic and international steel prices and a fall in raw material prices, initiate ‘trading buy’ on Tata Steel and JSW Steel with target prices of Rs 580 and Rs 333 respectively.