The steel stocks have been rallying for the past few months. Many thought that the rally was done and the steel prices would not rise as they had risen over the past few months, but prices have moved up even more.
Vikash Singh, VP-Metals and Mining at Philip Capital said, “If we look at the Indian steel prices, they are still at a fair discount to the imported prices. So, the prices should either stay consistent at this level or there is a slight possibility of prices going up marginally from current levels. So for the time being we are advising people to hold on to the ferrous names like SAIL, Tata Steel.”
Amit Dixit, Research Analyst at Edelweiss Institutional Equities said that prices and stocks are moving up essentially because of the implementation of production cuts at Tangshan which would reduce steel production by around 22 million tonne for the year.
“22 million tonne might not seem huge in the overall context of the steel industry, but in terms of sea-bound market, there is no country that can replace that 22 million tonne. Also, if you look at the US and Europe, prices are not only at a 13-year high but also have breached the level that was seen before GFC. There the supply crunches are acute and our channel check indicates that in Europe the tight situation can continue well into Q4 of CY21. So we are seeing a long run and we can only take it to step by step because these policies can be typically very unpredictable. If tomorrow, the Chinese government decides to loosen the carbon emission thing a bit, then you will immediately find prices and stocks retracing back,” he said.
However, Dixit said that according to data for May and June, it is going to be the best quarter for steel companies.
“From the booking data we have for May and June, we believe that Q1FY22 would be possibly the best quarter that we would have seen in last so many years. It will be a record quarter for almost all the companies in the space,” he said.Watch the video for a detailed analysis