On the global front, HRC exports by both Japanese and South Korean producers remain unchanged at $415/t for the third consecutive week.
After 21 weeks of successive declines, domestic HRC prices are stabilising in the key markets of east and west India. In longs as well, there’s a glimmer of hope as rebars produced by small players seem to have settled within Rs 30,500–Rs 31,000/t. In the global arena, respite is in sight as HRC exports from Japan and South Korea are stable at $415/t while China’s export price has risen 1.6% (to $435/t) vis-a-vis last week. The CIS prices, however, have dipped further. Though it is early to call the end game on pricing, we are positive on: 1) rebar prices stabilising in small-scale producers’ market; and 2) stable/higher export prices for major steel-exporting countries. We reiterate that consensus forecasts are at risk and likely to be axed. Among ferrous names, we continue to prefer JSPL owing to its longs-focused product mix. Maintain ‘buy’ on JSPL, ‘hold’ on Tata Steel and JSW Steel, and ‘reduce’ on SAIL.
After the unprecedented decline over the past 21 weeks, we see domestic HRC prices stabilising in the key markets of Kolkata, Mumbai, Delhi, Ahmadabad and Tatanagar. Domestic HRC prices, on average, have dipped 7% in October to `34,575/t (down 27% y-o-y). On the longs front, the situation is relatively good with rebar prices stabilising within Rs 30,500–Rs 31,000/t in small-scale producers’ market. The discount between large and small-scale rebar producers has narrowed to the first quintile of the7-year range at `2,865/t (7-year average of `4,119/t).
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On the global front, HRC exports by both Japanese and South Korean producers remain unchanged at $415/t for the third consecutive week. After 16 weeks of successive declines, China’s export price is up 1.6% this week to $435/t. But we are still concerned about the precipitous fall in CIS HRC price, down 20% y-o-y since September to $368/t (the lowest level since August 2016). Indian export price, too, followed, slipping to $418/t. We believe this is likely to impact margins of JSW Steel and Tata Steel in Q3FY20.
We argue that consensus forecasts for ferrous players, which don’t factor in the currently low prices, face considerable downside risk. But we do believe that the worst may be over for ferrous stocks amid relatively favourable macroeconomic situation.