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India: After a tough FY23, steel companies may see a gradual recovery

Financial year 2022-23 was a difficult one for steel companies with a slew of headwinds such as dull demand, government imposing export duty on the metal and elevated input costs. While the export duty levy was rolled back in November, weak global demand environment did not help.

Analysts at Nomura Financial Advisory and Securities (India) hosted a conference call with JSW Steel Ltd’s management. JSW expects an uptick in the contribution of total exports in the March quarter (Q4FY23) from the 7% level seen in the December quarter (Q3FY23). However, the share is not likely to rebound to the usual level of 15%, said the management.

There has been some respite from other challenges, too, but a meaningful recovery in volumes and margins across steel companies is likely to be gradual at best.

In the domestic markets, steel prices are volatile. “Hot-rolled coil (HRC) prices in India fell Rs100 per tonne week-on-week to Rs59,900,” said Nomura analysts in a report on 3 April. However, the average price in March was up by about Rs700 at Rs60,200 per tonne versus the February average, they added.

On the raw material front, it is a mixed bag. Coking coal prices have corrected over 4% in March to $365 per tonne and are currently below $320 per tonne, noted Motilal Oswal Financial Services analysts. This would aid margin performance.

On the other hand, the price of another key raw material, iron ore, is inching up. NMDC Ltd, state-owned iron ore producer, recently hiked prices, which marked the fourth price increase taken by the company post removal of export duty.

To be sure, an uptick in the demand environment is crucial to support prices of steel and thereby investor sentiments. For that, recovery in the Chinese economy is necessary as the country is a key market for metals. “For the first two months, the Chinese economy has been showing signs of recovery, on the back of pickup in consumption and higher infrastructure investment, and this is expected to grow about 4% in the first quarter of FY24,” said Motilal Oswal analysts.

As things stand, shares of JSW Steel, Tata Steel Ltd and Jindal Steel & Power Ltd are down by 12-25% from their respective 52-week highs.
Source: Livemint

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