Regional steel prices and spreads are normalising. Domestic steel prices have declined, but with domestic prices still at 9-10% premium to import parity, we see scope for further correction. Margins should decline, even for converters like JSW. BS metrics could worsen. While stock prices have corrected, MTM valuation at over 8x FY20e Ebitda for JSW, SAIL appears unattractive. We reiterate Underperform rating for JSW and SAIL. We have a Hold rating on Tata. Spreads normalising finally as expected China FOB price is down 16% at $475\/ton; spreads are down $80\/ton since end September. We have viewed supernormal mill spreads over last 18 months as unsustainable as Chinese output stayed elevated at over 950 mn tons annualised run rate. Limited case for higher spreads Chinese steel demand indicators are moderating, but Chinese steel output remains elevated. Winter cut impact has been limited. While spreads are down from supernormal highs, it is still above average rather than near a trough. Domestic prices: Expect more correction Domestic steel demand growth has been strong (7.9% YTD FY19) YTD, but domestic HRC prices are down 4% (`1,500-2,000\/ton); rebar prices are down 5-6% (`2,000\/ton) vs. September quarter average. We expect further correction as domestic prices (ex mill) are still 9-10% premium to FTA import parity; and 3-4% premium to Chinese import parity. Notably, import parity implies 7-8% downside risk to our domestic HRC ex mill estimate in FY20e. Domestic steel mill margins to decline Conversion spreads (HRC less lagged input costs) for integrated (Tata proxy) and non-integrated mills (JSW proxy) are down Rs3,500-5,500\/ton respectively and as domestic prices soften, spreads should fall further. Stress testing BS metrics With spreads normalising, valuations of recent stressed asset deals\/bids would appear more expensive. Assuming domestic prices near import parity (HCC at $180\/ton), net debt\/Ebitda could rise to (a) 4x for JSW (5x if JSW wins BPSL) vs. Base case 2.8x; (b) 4.4x for Tata (FY20 est. 3.6x) and (c) over 7-8x (FY20 Est. 3.8x) for SAIL given its low margins. Also read: Tata can\u2019t raise questions over Bhushan Power offer: JSW steel to NCLAT Reiterate Underperform on JSW, SAIL At JSW, margins should fall despite it being a converter. Margins at recently acquired overseas assets could disappoint. Valuations (6.8x FY20e Ebitda) appear rich given downside earnings risk. At SAIL, margins erosion could be meaningful given its low base. Volume growth should disappoint. At Tata, margins should fall as well. Net debt has increased due to recent deals, but valuations at 5.8x FY20e Ebitda appears more reasonable.