Steelmaker JSW emerges as lone star among India metal stocks

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Published: December 10, 2018 2:33:53 PM

Copper usage is expected to accelerate by 10 percent this fiscal year, while aluminum consumption is estimated to rise 5 percent.

India is set to overtake the U.S. as the world’s second-largest consumer of steel soon and demand is estimated to grow by 7 percent in the near- to medium-term driven by the government’s infrastructure spending.

Metal stocks in India are feeling unloved by investors, with one exception: the country’s top steelmaker JSW Steel Ltd. While demand for metals has been accelerating as the South Asian nation plans major investments to overhaul its creaking infrastructure, shares of most producers have slumped this year. JSW Steel is the lone stock that’s set to end in the green in the 10-member S&P BSE Metal Index, which lost nearly a quarter of its value in 2018.

The index is set for its first annual decline in three years, while the country’s benchmark index is edging toward its third year of gains.

The Sajjan Jindal-led mill has risen about 12 percent this year. That compares with a 26 percent drop in rival Tata Steel Ltd. and a 45 percent decline in state-run Steel Authority of India Ltd. Among base metal producers, Vedanta Ltd. has lost 41 percent.

A fall in global metal prices on trade tensions between the U.S. and China amid higher raw material costs has weighed on the sector. China’s steelmakers are facing their biggest test in three years, as the intensifying trade stand-off has added to the pressures on the economy – including the parts that consume most steel. Steel futures in China have fallen over 20 percent since reaching a seven-year high in August, while the LME Index has fallen about 16 percent this year, led by declines in zinc, lead and copper.

Bright Outlook

Still, the outlook for India’s steel sector remains bright as the spreads between raw material prices and finished products haven’t fallen compared with other regions and domestic demand growth is expected to remain the highest in the world, Amit Dixit, an analyst at Edelweiss Securities Ltd., said a Dec. 3 report.

India is set to overtake the U.S. as the world’s second-largest consumer of steel soon and demand is estimated to grow by 7 percent in the near- to medium-term driven by the government’s infrastructure spending. Copper usage is expected to accelerate by 10 percent this fiscal year, while aluminum consumption is estimated to rise 5 percent.

JSW Steel remains the top pick among metal companies as other firms grapple with elevated debt, high employee costs and non-performing overseas assets, Bhavesh Chauhan, an analyst at IDBI Capital Markets & Securities Ltd., said by phone from Mumbai.

“JSW in that sense has mainly domestic plants, which have very efficient processes, lowest conversion costs and its volume growth has always been better than others.”

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