The domestic steel sector is poised for a strong second half in FY27, mainly because of a rebound in steel prices, a gradual rise in demand, and tight supply. Tata Steel, Jindal Steel, SAIL, and JSW Steel are expected to be the biggest beneficiaries of these tailwinds, analysts said.
After an extended fall spanning several months, steel prices in the country are recovering, particularly those of long steel products.
This rebound is being driven by several factors, such as an increase in raw material costs, strengthening demand as the erratic monsoon comes to an end, and leaner inventories with distributors after maintenance-related shutdowns at major mills, analysts said.
Demand and raw material costs drive steel recovery
The price of steel rebar has risen to around Rs 56,800– 60,450 per tonne currently from Rs 48,850 per tonne in June, according to Uttam Kumar Srimal, Deputy Head – Fundamental Research at Axis Direct. Prices of hot-rolled coil have risen to around Rs 63,800-Rs 64,000 per tonne while cold rolled coil prices are trading near Rs 75,000 per tonne, levels last seen in June 2022, Srimal said.
The sharp fall in prices was mainly in steel rebars, which is the long product typically used in construction activities. “With the monsoon being patchy due to El Nino, construction activity in the country has also fared better, supporting demand. Moreover, demand from the automotive and pipe manufacturing sectors have also been growing, further aiding steel prices,” said Ravi Sodah, executive vice president at Elara Capital.
Supply tightness: Consumption outpaces domestic production
An increase in government spending on infrastructure has also supported demand. Domestic steel demand remains healthy, with consumption rising 7% year-on-year to 70 million tonnes in April-August. This outpaced the 3.7% increase in production to 67.4 million tonnes in the same period, Srimal said, adding that the relatively slower growth in supply has helped sustain a tight domestic market.
“For FY27, industry consumption is expected to grow by 7–9%, driven by sustained infrastructure activity and healthy construction demand, with cement consumption rising 12.5% YoY in August providing further evidence of underlying demand strength,” Srimal pointed out.
“Ongoing investigations into anti-dumping duty against imports should keep imports in check. We expect utilisations to remain +90% over the medium term, led by robust demand, 7% CAGR over FY2026-29E, outperforming capacity additions,” said Amarjeet Maurya, DVP Fundamental Research, Kotak Securities.
The safeguard duty imposed on steel imports has also helped to keep the market tight and avoid flooding of cheap Chinese steel. There are also murmurs of an extension to the duty as several large steel players are pressurising the Centre.
“…government may plan to extend that (duty) because a lot of import restrictions which are happening nowadays in the Indian market (are) to get the boost for more manufacturers and to incentivise (them),” Netra Deshpande, research analyst at Mirae Asset Sharekhan, said, adding that three large steel players are putting the pressure.
Coking Coal Inflation Pushes Mill Realizations Higher
Another major factor for the rise in steel price is a sharp increase in coking coal costs, a key raw material used in manufacturing the metal. Coking coal prices have risen by 22% to around $283 per tonne from an average of $232 per tonne in August, said Axis Direct’s Srimal.
He said that every $10 per tonne increase in coking coal costs adds around Rs 7-8 per tonne to production costs, “implying that a portion of the recent steel price rally reflects cost pass-through rather than an expansion in margins.”
Steel majors have taken price hikes of around Rs 5,000 per tonne recently to mitigate the rise in costs. “We have to keep in mind the fact that the raw material has been in inflationary nature. So if that is the case, the finished product prices will remain firm,” Elara’s Sodah said.
Key steel stocks to watch: Top analyst bets
Several analysts with whom Financialexpress.com spoke, projected Tata Steel as their top pick for the sector. Other companies that are also expected to benefit in the second half of the year are Jindal Steel, SAIL, and JSW Steel.
Elara Capital prefers Tata Steel right now due to its current valuations. Sodah said they are expecting profitability of the company’s Europe operations to recover each quarter from hereon and that the valuation gap with peers should narrow.
Axis Direct’s Srimal prefers SAIL along with Tata Steel while Kotak’s Maurya prefers Jindal Steel and SAIL. Maurya of Kotak said Jindal Steel is the “best placed” to benefit from the ongoing recovery in long steel prices, as these account for almost 50% of its volumes, the highest amongst its peers.
“The company is moving from the build phase to the harvest phase, as all its ongoing expansion projects are nearing completion,” Maurya said, adding that volume ramp-up and cost reduction from various growth projects should drive volume growth at 17% compounded annual growth rate over FY26-FY29 while EBITDA growth is seen at 31% CAGR over the same period.
Mirae Asset’s Deshpande preferred JSW Steel and SAIL as these two are part of their coverage. Apart from these, she said Tata Steel and Jindal are also the “good players.”
Q2 FY27 earnings outlook for steel companies
| Factor | September quarter (Q2 FY27) outlook | Likely impact on steelmakers |
| Steel realisations | Prices recovered mainly in August and September | Limited benefit to quarterly average realisations |
| Coking coal costs | Increased 22% to around $283/tonne | Higher production costs and margin pressure |
| Operating margins | Expected to weaken sequentially | Pressure on near-term profitability |
| Demand | Infrastructure and construction demand remain healthy | Supports sales volumes and subsequent earnings recovery |
| Later FY27 outlook | Analysts expect margins to recover as prices strengthen | Potential improvement in profitability, subject to cost trends |
Steel stocks: Earnings expectations
Ferrous majors in the country are expected to post “mixed” results for the September quarter. While all of the above factors are supporting these companies, several of these developments have happened towards the end of the quarter.
Alok Deora, Institutional Research Analyst – Metal at Motilal Oswal Financial Services said September quarter is a seasonally weak quarter and earnings are expected to be under pressure.
Maurya said the margins of steel companies are expected to weaken sequentially in the September quarter. However, he sees the recent price recovery and operating leverage to help margins recover later in the year.
Deshpande said September is expected to be a mixed quarter as prices were lower in July. The rebound began in August, and so the average realisation for the quarter is going to capture this disparity.
The rise in coking coal and iron ore costs are also expected to eat into some benefits from the price hikes and put pressure on margins.
“Smaller producers without captive raw material resources remain more vulnerable to input cost inflation, particularly if higher coal and iron ore costs cannot be passed on fully. In contrast, integrated steelmakers with captive mines are relatively better positioned to absorb cost pressures,” Srimal said.
Steel sector stocks to watch out for now
Strengthening demand, recovering prices, and tight supply are likely to support steel majors in the second half of FY27.
The increase in input costs such as coking coal compelled companies to hike prices. Tata Steel and Jindal Steel were analysts’ top bets followed by SAIL and JSW Steel.
The September quarter earnings of these companies are likely to be mixed as several tailwinds started towards the end of the quarter.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.