Share prices of Tata Steel, JSW Steel and SAIL gained 3-4 percent intraday on December 17 after Citi upgraded ratings on these stocks, citing likely increase in global steel prices.
The global brokerage house upgraded Tata Steel and JSW Steel (from sell) to buy, and SAIL to neutral.
“We are expecting global steel prices to rise on the greater likelihood of China easing and potential demand upside in Rest of World and India. Further volatility in margins should ease as China’s supply additions would end in 2020, and we don’t expect a sharp deceleration in China demand at least until the mid-decade,” Citi said.
China steel demand has run ahead of expectations in 2019, whereas the Rest of the World has disappointed (-2 percent YTD). Margins had hit a low (since FY16) in Q2FY20, but have rebounded since then on low China inventories and ex-China curtailments.
While China’s future demand remains a wildcard (resilient near term), the key takeaways from the Central Economic Work Conference (CEWC) on December 10-12 (the CEWC expressed monetary policy stance as prudent, but added that the policy should be flexible and appropriate) and the PBoC’s recent 5bp cut of the 7-day RRR raise the probability of government easing, Citi said.
With 2020 an election year in the US, the brokerage expects positive policies for global trade/growth.
India’s steel demand has likely been flat/down YTD. Steel prices fell below the anti-dumping floor briefly in October 2019. After a trough of Rs 34,500 per tonne (and the end of the destocking cycle), domestic prices have been hiked by around 4 percent through November/December (now at import parity). The import parity price has also increased.
“We think India’s demand will rebound from the trough and thus we incorporate further upside to steel prices. Our average hot-rolled coil (HRC) price expectation for FY21 is flat against FY20 at Rs 38,000 per tonne (spot Rs 36,000 per tonne),” Citi said.
JSW Steel was up 3.32 percent at Rs 261.45, Tata Steel up 4.33 percent at Rs 439.30 and Steel Authority of India up 3.80 percent at Rs 40.95 on the BSE at 1116 hours IST.
news source :- moneycontrol