Feb 21, 2023
Steel makers face double whammy of rising costs and falling prices
2023-03-24
For steel manufacturers, headwinds remain as prices of raw materials continue to rise amid a fall in steel realisations. While the average monthly price in February so far is higher than January, the week-on-week fall in steel prices has not been comforting.
“Hot rolled coil prices in India declined by ₹1,500 per tonne week-on-week to ₹58,300, with the average prices in Feb-23 so far up by about ₹1,800 to ₹59,700 vs the Jan-23 average. The average monthly prices have remained at the highest levels since Jul’22," said analysts at Nomura Financial Advisory and Securities (India) in a report on 20 February.
The March quarter is seasonally strong and this would provide some support to steel prices. But rising prices of raw materials will weigh on margins. Coking coal prices are currently 15.7% above the average seen in January, largely due to supply constraints and improved buying interest from China as reported by Steelmint, added the Nomura report.
Moreover, price of another raw material, iron ore, is also on the rise. NMDC Ltd, key supplier of the commodity in India, took two consecutive price hikes in January and further increases cannot be completely ruled out.
“The management across the board have guided for stormy tides from the end of Mar ’23 onwards, if the prices of raw materials do not cool down. If the prices continue to remain at these levels, working capital cycle and margins of the steel companies would get adversely impacted," said analysts at Motilal Oswal Financial Services in a report on 20 February.
Meanwhile, steel prices in Europe are moving up as the earthquake in Turkey has led to supply disruptions. This is an opportunity for companies which have a strong presence in Europe such as Tata Steel Ltd.
To be sure, overall demand is yet to pick up meaningfully and that would be a catalyst for an upside in steel stocks. Shares of Tata Steel, JSW Steel Ltd and Jindal Steel & Power Ltd are down 5-18% from their respective 52-week highs.
Source: Livemint
