​​​
  1. Kotak puts ‘Add’ rating on Tata Steel at Rs 460 target price; JSW Steel at Rs 1,900

Kotak puts ‘Add’ rating on Tata Steel at Rs 460 target price; JSW Steel at Rs 1,900

The sharp increase in coking coal costs will hurt near term margins of Indian steel companies due to the lag effect in transition of increased cost to higher steel prices.

By: | Published: December 27, 2016 6:43 AM
Tata Steel, Kotak, coal prices, demonetisation, Tata Business, JSW Steel The sharp increase in coking coal costs will hurt near term margins of Indian steel companies due to the lag effect in transition of increased cost to higher steel prices. (Source: IE)

The sharp increase in coking coal costs will hurt near term margins of Indian steel companies due to the lag effect in transition of increased cost to higher steel prices. Steel spreads (and consequently prices) are improving globally and we expect margins to normalise soon either through decline in coking coal prices, or higher steel prices. China’s tighter control on steel supplies through capacity cuts and plant idling on weak industry margins and for pollution control is encouraging too. We maintain add with revised TP for Tata Steel at R460 (R465) and JSW Steel at R1,900 (R2,070).

Weaker domestic demand in November – December 2016 due to demonetisation has not helped either. However, domestic steel prices (especially for flat products) are now increasing fast led by higher global steel prices and consequent increase in import offers; China prices have increased by 40% since October 2016 (from raw-material cost push) which compares to 15% increase in domestic HRC prices (+R4,600/tonne q-o-q in 3QFY17).

You might also want to see this:

div style=”position:relative; padding-bottom:56.25%; overflow:hidden;”>

The increase in long product prices though has been lower at 9% (+R2,200/tonne q-o-q in 3QFY17) due to weak domestic demand and overcapacity. Weaker long product prices will hurt earnings of mid, small-sized steelmakers more. Tata Steel and JSW Steel have relatively lower exposure to long products (25-30% of product mix).

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Go to Top