Tata Steel, JSPL: Buy these 2 steel shares, says Antique Stock Broking
JSPL, Tata Steel: While the September quarter could be impacted by the monsoon and weaker steel prices -- caused by elevated Chinese exports, the second half of the ongoing financial year could register strong volumes, Antique said.
- Sep 13, 2024,
- Updated Sep 13, 2024 2:51 PM IST
Antique Stock Broking said it prefers steel companies with strong market presence, greater raw material integration, low leverage, and higher exposure to the domestic market. Lower coking coal costs may partly mitigate weaker steel prices going ahead, it said while suggesting Jindal Steel & Power Ltd and Tata Steel Ltd as its preferred stock picks.
While the September quarter could be impacted by the monsoon and weaker steel prices -- caused by elevated Chinese exports, the second half of the ongoing financial year could register strong volumes, driven by resumption of construction activities after the election season and monsoon. The World Steel Association's short-range outlook projects India's demand to rise to 144.3mt in 2024 and 156 mt in 2025.
On the other hand, spot Chinese export HRC price has declined 8.9 per cent month-on-month (MoM) and 15.6 per cent YoY to $460 per tonne while Chinese domestic steel price has softened 8.9 per cent MoM and 19.7 per cent YoY to $432 per tonne. International iron ore prices declined 7.5 per cent MoM to $92 per tonne.
"Spot Chinese Ebitda spreads continue to remain negative, implying prices could move up. According to reports, Chinese crude steel production in Jan'24-Jul'24 has declined by 2.2 per cent from the corresponding period last year. Though Chinese steel exports have risen MoM (grew 21.3 per cent MoM to 9.5 mt in August), further rationalisation of Chinese steel production and imposition of domestic trade barriers could allay excess import concerns," Antique Stock Broking said.
Meanwhile, domestic steel demand remains strong with provisional JPC (Joint Plant Committee) data suggesting that Apri-August domestic finished steel consumption at 60.30 mt grew 13.8 per cent YoY, backed by the recently re-elected government's infrastructure push," it said.
"Rationalisation of Chinese steel production, leading to lower exports and likely imposition of domestic trade barriers, could support Indian steelmakers. We prefer steel companies with strong market presence, greater raw material integration, low leverage, and higher exposure to the domestic market. We maintain BUY on JSPL (target price of Rs 1,108) and Tata Steel (target price of Rs 180)," it said.
Antique noted that average domestic spot steel HRC price at Rs 51,165 per tonne has softened 4.3 per cent sequentially and is currently at 7.4 per cent premium to Chinese import parity prices. This is against a premium of 11.9 per cent in August. The average rebar price at Rs 51,500 per tonne is 9.5 per cent lower QoQ while the spot re-bar price (at Rs 50,600 per tonne) is at a premium to spot HRC price (at Rs 49,000 per tonne), thus favoring JSPL, which has a higher proportion of longs in its product mix, the brokerage said.
The domestic brokerge said Tata Steel's Port Talbot (UK) transition from blast furnace to electric arc furnace is underway with the $500 million grant funding agreement from the UK government. Antique has 'Hold' rating and a target of Rs 148 on SAIL. It finds JSW Steel worth Rs 899.
Antique Stock Broking said it prefers steel companies with strong market presence, greater raw material integration, low leverage, and higher exposure to the domestic market. Lower coking coal costs may partly mitigate weaker steel prices going ahead, it said while suggesting Jindal Steel & Power Ltd and Tata Steel Ltd as its preferred stock picks.
While the September quarter could be impacted by the monsoon and weaker steel prices -- caused by elevated Chinese exports, the second half of the ongoing financial year could register strong volumes, driven by resumption of construction activities after the election season and monsoon. The World Steel Association's short-range outlook projects India's demand to rise to 144.3mt in 2024 and 156 mt in 2025.
On the other hand, spot Chinese export HRC price has declined 8.9 per cent month-on-month (MoM) and 15.6 per cent YoY to $460 per tonne while Chinese domestic steel price has softened 8.9 per cent MoM and 19.7 per cent YoY to $432 per tonne. International iron ore prices declined 7.5 per cent MoM to $92 per tonne.
"Spot Chinese Ebitda spreads continue to remain negative, implying prices could move up. According to reports, Chinese crude steel production in Jan'24-Jul'24 has declined by 2.2 per cent from the corresponding period last year. Though Chinese steel exports have risen MoM (grew 21.3 per cent MoM to 9.5 mt in August), further rationalisation of Chinese steel production and imposition of domestic trade barriers could allay excess import concerns," Antique Stock Broking said.
Meanwhile, domestic steel demand remains strong with provisional JPC (Joint Plant Committee) data suggesting that Apri-August domestic finished steel consumption at 60.30 mt grew 13.8 per cent YoY, backed by the recently re-elected government's infrastructure push," it said.
"Rationalisation of Chinese steel production, leading to lower exports and likely imposition of domestic trade barriers, could support Indian steelmakers. We prefer steel companies with strong market presence, greater raw material integration, low leverage, and higher exposure to the domestic market. We maintain BUY on JSPL (target price of Rs 1,108) and Tata Steel (target price of Rs 180)," it said.
Antique noted that average domestic spot steel HRC price at Rs 51,165 per tonne has softened 4.3 per cent sequentially and is currently at 7.4 per cent premium to Chinese import parity prices. This is against a premium of 11.9 per cent in August. The average rebar price at Rs 51,500 per tonne is 9.5 per cent lower QoQ while the spot re-bar price (at Rs 50,600 per tonne) is at a premium to spot HRC price (at Rs 49,000 per tonne), thus favoring JSPL, which has a higher proportion of longs in its product mix, the brokerage said.
The domestic brokerge said Tata Steel's Port Talbot (UK) transition from blast furnace to electric arc furnace is underway with the $500 million grant funding agreement from the UK government. Antique has 'Hold' rating and a target of Rs 148 on SAIL. It finds JSW Steel worth Rs 899.