Steel makers would see improved margins in the fourth quarter due to an expected buoyancy in the metal’s prices, which stayed depressed for the first nine months of the year. China opening up would be an added benefit. The demand for steel is expected to rise 7-8% in Q4.

“Steel prices have risen from $600 in December to $700 per MT now, while coking coal prices have also remained largely unchanged at $280 per tonne. The demand is also strongest in Q4, which would also lead to a rise in volumes. Further, China opening up its economy would also come to steel firms’ aid,” Priyesh Ruparelia, vice president and co-group head-Corporate Ratings at Icra, said.

“The demand for steel is expected to rise 10-11% for the year,” he added.

India’s total demand for steel is estimated to be at 116-117 MT for FY23, compared with 105 MT in FY22. Steel usage by realty firms in China accounts for 40-45% of the country’s consumption, which is also good for Indian companies, an industry expert said.

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According to a Jefferies’ report, India hot rolled coil (HRC) steel price has also improved 8% in the calendar year to date (CYTD) to about Rs 60,000 per tonne, after falling 13% in 2022. But it is still at a 3% discount to landed imports from China.

India had turned a net importer of steel in H2CY22 as domestic prices were at a premium to landed imports and a 15% export tariff was imposed in May 2022. With domestic prices now at a slight discount to imports and the government scrapping the export tax in November, net imports have declined in January.

“Our estimates factor in India HRC steel price of Rs 61,000-61,500 per tonne in FY24-25, broadly in line with spot,” it said, adding a cyclical recovery in China looks increasingly likely in 2023 as after a weak 2022 as China’s economy is showing signs of recovery.

According to Kotak Institutional Equities: “The Chinese government has set a moderate GDP growth target of about 5% for CY2023. However, with a higher new urban employment target and fiscal deficit, economic growth appears to be the top priority for the government. We expect 0-2% steel demand growth in China for CY2023 after a weak (-2.5% y-o-y) in CY2022 as the property sector woes find a floor”.

The research firm said it believed that Tata Steel’s India steel margins had bottomed in Q2. “We expect margins to recover further in coming quarters, after a mild recovery in Q3FY23, led by recent price hikes, stable raw material costs and operating leverage on stronger volumes,” it added.

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With a firm domestic steel demand, Shyam Metalics is poised to benefit from enhanced capacity and expected lower thermal coal prices, while margins for SAIL and Tata Steel India would also improve in Q4, according to a report by Nuvama Institutional Equities.