Nifty Metal index up over 3%; Tata Steel hits over 4-month high

Shares of metal companies, mainly steel, were in focus on Tuesday with Nifty Metal index surging more than 3 per cent intra-day as analysts remain ‘overweight’ on Indian steel industry and see a likely consensus earnings upgrade cycle in sector major.

Among individual stocks, Jindal Steel & Power rallied 8 per cent to Rs 148 on the National Stock Exchange (NSE). Tata Steel hit an over four-year high of Rs 442, soaring 5 per cent today. The stock was trading at its highest level since July 30, 2019.  Steel Authority of India (SAIL), JSW Steel, and Jindal Stainless (Hisar) were up in the range of 3 per cent to 4 per cent.

At 01:17 pm, Nifty Metal index, the largest gainer among sectoral indices, was up 3.2 per cent, as compared to 0.74 per cent rise in the Nifty 50 index.

With strong Chinese demand, and production pulling back, analysts at JP Morgan expect regional steel prices to hold up at least for the next three months (while the winter suspension in China is ongoing). Globally, JP Morgan economists expect manufacturing to pick up.  Given improving steel prices, and seasonal demand improvement, analysts see potentially the start of consensus earnings upgrades.

“Steel prices have been increased across most markets globally, and in India we have seen two consecutive price hikes, in our view, given the large gap between domestic and imported steel prices (Rs 4000/t).  Lastly there is increasing risk of material disruption in iron ore supply next year, given likely issues with Odisha iron ore mine auction,” the brokerage firm said in India steel sector update.

According to analysts at ICICI Securities, given the experience in calendar year 2017 with Odisha, the clarifications on the process exclusion in Environmental Clearance (EC) required may limit the time of disruption. In case there is any (disruption), integrated players like Tata and miners like NMDC will benefit.

All Indian steel companies have been facing a downtrend in profitability since past 5-6 quarters, in-line with a dual effect of falling demand and lower prices. With a price uptick witnessed globally and in India, the same should follow historical course of a cyclical uptick in EBITDA/te in 2020, the brokerage firm said.

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