homemarket Newsstocks NewsDalal Street awaits Chinese stimulus and steel price bottoming as Indian mills raise prices
Dalal Street awaits Chinese stimulus and steel price bottoming as Indian mills raise prices
Investors are pinning their hopes on several key factors that could drive the sector's performance.
Dalal Street is experiencing renewed interest in steel stocks, despite current valuations being in line with historical averages. Investors are pinning their hopes on several key factors that could drive the sector's performance.
Valuations
Valuation-wise, the steel stocks are trading at par with their averages but there are very triggers that Dalal Street is hoping to play out which explains the recent interest in the stock.
| Valuations | FY25 EV / EBITDA |
| JSW | 7 times |
| Tata Steel | 5.7 times |
| JSPL | 5.6 times |
| SAIL | 5.1 times |
| NMDC | 5 times |
Hopes that steel prices have bottomed
Dalal Street is hoping that steel prices have bottomed as Chinese EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) spreads continue to remain negative which will provide support to current prices. Additionally, there are hopes for stimulus in China as it makes efforts to bolster its economy could result in increased demand.
Mild improvement in Chinese data
There were some improvements in Chinese data as its Purchasing Managers Index (PMI) in August 2023 improved month-on-month with the Chinese PMI coming at 49.7 for August 2023 against 49.3 in July 2023.
Recent measures to lower the minimum down payment for home buyers and slashed housing loan interest rates are expected to revive the real estate market and could increase domestic steel consumption within China.
Domestically price increases in August 2023 are encouraging
India's primary long steel mills have hiked rebar prices by Rs 1,500 per tonnes which is the fourth hike and since early August the cumulative hike has been to the tune of Rs 3,500-3,700 per tonnes in August 2023. The key reasons for hikes include strong pre-election demand, lack of rain, and also Increasing prices of iron ore and coking coal.
Hope of Chinese exports cooling off in H2CY23
Chinese steel exports in this fiscal so far have been elevated with exports +28 percent year-on-year (YoY) at 51.19 million tonnes. This implies a monthly run rate of 7.3 million tonnes in 2022 against 5.6 million tonnes in 2021. Additional supply puts pressure on prices as it indicates that Chinese demand is not adequate to absorb production and so they resort to exports.
The hope is since Chinese authorities have mandated that steel production needs to remain flattish for the year there will be lower production and in turn exports in the second half of 2023.
First Published: Sept 8, 2023 8:13 PM IST
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