The weakness in steel prices could continue as China looks to reduce its inventory in the next few months. With all this, ferrous metal companies in India are likely to benefit, a report says.
Steel prices in India will likely remain high in the coming quarters after recovering recently. The recent rise in steel prices was in line with the re-stocking as dealers were largely working on order-to-order basis, with almost negligible stocks. A small price hike in October triggered re-stocking, Emkay Global Financial Services said in a research note. Now, with Coronavirus hitting the Chinese economy hard with more than 2,100 fatalities, it is expected that steel prices in China will weaken in the near term. Further, the weakness in prices could continue as China looks to reduce its inventory in the next few months. With all this, ferrous metal companies in India are likely to benefit, the report notes.
“The average HRD/Rebar prices in Q4 to date is about 10 per cent/11 per cent higher than Q3 prices, paving the way for robust Q4 results,” the report says. On the back of the rising prices, Emkay Global recommends three stocks that investors should buy, expecting a robust performance in the coming quarters by these companies helped by the health crisis in China.
NMDC – Target Price: Rs 140
The third quarter results of National Mineral Development Corporation were helped by strong average sales price of iron ore. In the coming quarters, NMDC iron ore prices are expected to increase from the current price of Rs 1,870/t. “NMDC delivered yet another better-than-expected quarter, driven by strong iron ore ASP. The Nagarnar Steel plant is likely to be operational in H2FY21, driving up earnings further as the entire EBITDA from the plant will flow into PBT barring depreciation, NMDC being net cash company,” the report says. NMDC share price on Tuesday morning was around Rs 102.
Coal India – Target Price: Rs 271
Coal prices are likely to remain robust, according to Emkay Global. “We expect coking coal prices to inch up, driven by demand from Indian steel mills. India is the largest importer of the seaborne coking coal,” the report says. Coal India’s Q3 results were strong, with EBITDA beating estimates. Coal India is believed to deliver another strong set of results in the last quarter of this fiscal. The scrip is currently trading at Rs 177 a piece.
Tata Steel – Target Price: Rs 485
As domestic steel prices continue to rise, Tata Steel is likely to benefit. “Europe business continues to disappoint though standalone operations were in line. Consolidated debt remains at elevated levels, and the capex has been hit. We believe the 5mt expansion at Kalinganagar shall be delayed. In our view, the outlook for Tata Steel is strongly linked to the China steel prices. Valuations support investment argument,” Emkay Global says. Tata Steel was trading at Rs 416 on Tuesday morning.