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Coronavirus fallout: Raw material shortage to hit many steel companies hard

Updated : February 26, 2020 12:54 PM IST

One sector that has been facing the heat of coronavirus outbreak and business activity shutdown in China is the entire metals pack. The shortage of raw materials is taking a toll on many companies.

Speaking to CNBC-TV18, Kalyani Steels Managing Director RK Goyal and Edelweiss research analyst Amit Dixit gave their take on the outlook for the steel sector.

Goyal said demand is much better than what it was a few months ago and is expected to improve further.

“We have tremendous pressure on the cost part; the raw material prices have gone up, particularly iron ore. Owing to coronavirus outbreak in China, prices of certain raw materials are going up, particularly ferroalloys and refractory,” he noted.

“Right now we are able to manage with our inventories and materials in transit, but if this issue prolongs, then there may be problems in future,” he added.

Talking about stocks, Dixit said, “China inventory has gone up and it could be a risk if it comes to India. We believe that flat products would be at greater risk because longs traditionally are not imported and the measures that China is taking, the end-use sectors that have shown the first signs of pickup are longs. Therefore, I would go with long players such as Jindal Steel and Power and stay away from flat heavy players.”

“We like Tata Steel because of its raw material integration and the fact that European spreads look better now. So we like both JSPL and Tata Steel but in order of preference JSPL above Tata Steel,” Dixit added.
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