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BSE   26 May 17 | 12:00 AM

199.15 6.4 (3.32%)
Mkt Price (Rs)   Chg Rs (Chg %)
Code: 500228
Face Value: N.A.

NSE   26 May 17 | 12:00 AM

198.85 6 (3.11%)
Mkt Price (Rs)   Chg Rs (Chg %)
Code: JSWSTEEL
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1 Week : Rs 193.55 (2.89%)
1 Month : Rs 199.00 (0.08%)
1 Year : Rs 137.18 (45.17%)
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Rising risks on export front may dent fortunes of steel players

Ujjval Jauhari / 06 Apr 17 | 11:21 PM

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There have lately been talks of steel prices being hiked by Rs 1,000-2,000 a tonne, and these sound encouraging. On a positive note, steel manufacturers have also started reporting strong production numbers. Tata Steel’s provisional numbers, for instance, show saleable steel production is up 17 per cent to 11.34 million tonnes (MT) in FY17 and a 22 per cent growth to 3.11 MT in March 2017 quarter. JSW Steel, too, has reported an impressive trend with 15.8 per cent growth in production to 15.8 MT in FY17 and 28 per cent growth to 4.10 MT in March quarter. These have helped the share price of steel companies’ trade firm on the bourses. However, there are reasons to be cautious. 

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The growth for steel players in FY17 was led by the tide turning favourable. The curbs on cheap imports, especially from China, helped increase domestic demand. Simultaneously, exports from India picked up in the second half helped by rising international steel prices. Growing exports and better product mix helped Indian steel companies during the second half at a time when domestic demand was soft.

Tata Steel reported its highest ever annual automotive sales of 1.54 MT, up 9 per cent year-on-year in FY17, as its overall exports sales grew to 7 per cent of total volumes versus just two per cent in the previous year. JSW Steel, too, saw its flat products’ production grow 25 per cent in last quarter and 16 per cent in the month of March. Long product production during March quarter grew just seven per cent but declined four per cent in the month of March. The long products are used in construction sector and demand still remains weak as is visible from data. The flat steel is used by automobile and consumer durables industry as also for exports. 

However, there are headwinds for exports. The strengthening of rupee (up over four per cent) is one reason that may pose risks to export growth. Secondly, exports from China play an important role and analysts at Emkay Global say that despite all the noise about Chinese steel capacity cuts, steel production in China continues to grow as actions are being taken on the capacities, which are already idle.

In this backdrop, and with domestic demand weak, sustainability of price hikes is being looked at with scepticism. Analysts say that January price hikes of about Rs 3,000 a tonne had to be rolled back step-by-step till mid-February. On fresh talks of hikes, analysts at ICICI Securities had said that price increases in March are more of noise than reality. The increase, which the producers are trying to push through for April 2017, are quite ambitious, given the high level of inventory in the system.

While the Jury is still out, there are reasons for investors to be cautious. 

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