Credit Suisse has downgraded its long-standing positive view of the Indian steel industry as it sees multiple risks to the prices of the alloy.
This, he says, is due to the fact that:
The impact of the supply chain shock, which drove steel prices to record highs, is easing.
China is entering a low demand season at a time when production continues to be very strong.
Recent Chinese government comments on commodity price controls, especially steel and iron ore.
The production rate outside of China is catching up and is currently only 4% below the pre-Covid peak, while demand is at the pre-Covid peak. Supplier delivery times in April also decreased from March.
In addition, steel production and demand in India, which had started to normalize towards the end of 2020, were again affected as the second wave of Covid-19 led several states to impose lockdowns, according to the report. from Credit Suisse – co-authored by research analysts Neelkanth Mishra, Prateek Singh and Abhay Khaitan. And Indian steel mills, according to the report, have not been able to aggressively raise prices, as regional export prices have risen. This caused an 18% gap between Indian domestic prices and landed imports, creating leeway for increases and a buffer against regional price declines.
“But with emerging risks to steel prices, this buffer may not last long, limiting the possibilities for price increases. We expect global iron ore and steel prices to weaken in the second half of 2021. The September quarter is also a period of seasonal weakness for steel prices in India. “
However, according to the research firm, domestic iron ore prices are not expected to correct as much due to the sustained rise in exports and the increased cost base for miners, including NMDC Ltd. having access to low-cost ore (Tata Steel Ltd. and Steel Authority of India Ltd.) would benefit relatively, he said.
As a result, the search form lowered its ratings for Jindal Steel & Power Ltd., JSW Steel Ltd. and Tata Steel.
Downgrades Tata Steel to “neutral” from “outperforming” with a revised target price of Rs 1,250 from Rs 630, indicating a potential rise of 13%.
Downgrades Jindal Steel & Power to “neutral” from “outperforming” with a revised target price of Rs 450 against Rs 250, indicating a potential rise of 10%.
Downgrades JSW Steel to “underperform” from “neutral” with a revised target price of Rs 550 from Rs 300 each, indicating a potential drop of 20%.
Maintains the “neutral” rating on SAIL but increases the target price to Rs 140 from Rs 43 each.
Credit Suisse, for its part, said that a sequential sharp improvement in global steel demand in the second half of calendar year 2021, with China drastically reducing steel production or breakdowns on the China side. iron ore supply leading to higher steel prices are the main risks to its appeal.
Metals inventories have seen a stellar rally this year as steel prices, according to the report, hit “astronomical levels” in 2021, particularly in the United States and Europe. Also in India, the Nifty Metal index has risen 55% so far this year, compared to a 9.2% gain in the benchmark Nifty 50 during the period. Over the past eight sessions, however, the Metals Index has lost 3%, while Nifty has gained 2.3%.
Shares of Jindal Steel, JSW Steel and Tata Steel were trading down 3.9%, 2.18% and 1.85% at 2:45 p.m. Wednesday.