Steel Stocks Outlook for the week - 25 to 29.11.2013

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Steel stocks are seen trading subdued the next week due to expected oversupply in the domestic market, with Jindal Steel and Power seen gaining We believe that, in the short run, the performances of steel manufacturers would continue to be squeezed by oversupply challenges. Considering Jindal Steel and Power's focus on completing its capital expenditure by mid 2014-15, we believes this offers 'huge visibility on the deleveraging process. The stock quotes at 7.3x FY15e EV/EBITDA at with imminent rerating potential reflecting the strong growth assets and balance sheet in the present backdrop. 

We are expecting the improving operational cash flows to reduce concerns over the tata steel's debt. The company's net debt as on Sep 30 is 643.34 bln rupees. On a short-term basis, we sees Tata Steel trading range bound with a support of 370 rupees and a resistance of 405 rupees. In the non-ferrous metals segment, the sentiment is slightly positive in the long run owing to positive Chinese economic data. China accounts for around 40-50% of global metal consumption. 

Steel Stocks Outlook for the week - 11.11.2013 - 15.11.2013

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Steel stocks are seen rangebound next week due to lack of any major triggers. Nifty major Tata Steel will be eyed as the company will detail its earnings on Wednesday. The index closed at 2320.05 today. Tata Steel is seen reporting a Jul-Sep consolidated profit of 3.16 bln rupees, down almost two-fold on a year-on-year basis, while net sales is seen rising 3% on a year-on-year basis to 349.28 mln rupees. On a quarterly basis, consolidated net profit of the company is seen falling 72% while revenue is seen rising 7%. 

Yesterday that Tata Steel's quarter-on-quarter decline is just a seasonal factor and recommends a buy-on-weakness strategy as the brokerage expects the upgrade cycle to begin for the company soon in spite of the stock rising almost 80% since August. 

Steel Stocks Outlook for the week - 21.10.2013 - 25.10.2013

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Steel stocks are seen slightly up next week on the back of positive Chinese gross domestic product growth data, although caution would be the refrain due to uncertain demand scenario. Shares of steel companies rallied 1-6% yesterday on strong economic data from China. China's GDP grew 7.8% in Jul-Sep against 7.5% a quarter ago, in line with market expectations. China is one of the world's largest consumers of steel.

While there is no V shape recovery, there should be some gradual pick up in demand from: a) good harvest, b) positives from INR depreciation flowing through the export sectors, and c) import substitution from INR weakness. The demand number also supports the price increases seen in September and October (5-8% across Flats and Longs).

 Tata Steel Ltd, Steel Authority of India Ltd, and JSW Steel Ltd, and sees further upside in prices of shares of these companies as the operating environment continue to improve sequentially. 

Steel Stocks Outlook for the week - 07.10.2013 - 11.10.2013

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Stocks of major steel companies are seen marginally up next week with analysts largely positive on JSW Steel Ltd and Steel Authority of India Ltd. This week, the metal index outperformed the broader market, gaining around 1.8% while the benchmark indices gained around 1%. From Oct 1, Indian Railways has started levying a Busy Season Charge of 15% for ferrying all commodities. JSW Steel has raised prices of its flat products on this hike, and other steel players are also expected to undertake similar hikes. In spite of a few analysts saying that JSW Steel stock was in 'overbought territory', the stock has seen a 5.6% rise since Sep 27. Many analysts are still slightly positive on the stock. JSW Steel raised prices of its flat products by 1.5-2% effective Oct 1. The company also announced that it will set up a second steel processing unit at Pune. The announcements helped JSW Steel continue its dramatic rise. We are slightly positive on Steel Authority of India. The company reported saleable steel numbers of 5.7 mln tn in Apr-Sep, up 8% year-on-year. Tata Steel Ltd and Jindal Steel and Power Ltd are seen trading in narrow range due to lack of any major triggers.

Steel Stocks Outlook for the week - 30.09.2013 - 04.10.2013

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Steel stocks are seen down next week as investors are apprehensive of a poor earnings season, and will eye September production data of the companies in the coming days. This week, the metal index outperformed the broader market as it fell only around 1% while the benchmark indices fell around 2.5%. The Nifty shed 3.07% to close at 5833.2 today, while the BSE Sensex ended down 2.72% at 19727.27. The CNX Meta Index ended down 0.94% at 2122.35. Delay in resumption of the company's category A and B mines, and the lack of material improvement in the US plate and pipe mill operations will be negative triggers for the company. The management (of JSW Steel) indicated that there is positive news flow in respect of opening up of a few category B mines, but it may not result in higher capacity utilisation as the company primarily looks to replace the sourcing of iron ore from outside Karnataka with iron ore from the state itself. JSW Steel is currently in "overbought territory" and so will see corrections next week.

Steel Stocks Outlook for the week - 16.09.2013 - 20.09.2013

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Steel stocks are seen trading rangebound next weak in the absence of any major triggers, with our positive view on stocks of JSW Steel. This week, the Nifty gained 3% to close at 5850.6 yesterday, while the BSE Sensex ended up 2.4% at 19732.76. The CNX Metal Index ended up 4.1% at 2101.7. Yesterday, JSW Steel reported it produced 985,000 tn crude steel in August, down 1.5% from 1 mln tn last year. Despite the fall in output, we are positive on the stock as the figures were lower due to a maintenance shutdown at the company's plant, which was expected. Tata Steel shares will be under pressure next week as they may see a lot of short-term profit booking. In the near term, lower realizations, negative news flow from the Central Bureau of Investigation case and uncertainty over Shah Panel recommendations (especially for Sarda iron ore mines) will weigh on sentiment on Jindal Steel and Power. We believe the Street is wrongly extrapolating concerns over an investigation into one coal mine to all operating coal mines. Signing of Utkal B1 coal block mining lease could act as a nearterm positive trigger. No major movement is expected for Steel Authority of India stock
next week.

Steel Stocks Outlook for the week - 10.09.2013 - 13.09.2013

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Most steel stocks are seen moving in a narrow range next week due to likely absence of major triggers. Recent price hikes by steel majors such as JSW Steel Ltd, Steel Authority of India Ltd, and Tata Steel Ltd may sustain in spite of the low demand scenario because of the difference with the landed cost of imported steel. The prospects of a rollback in prices could emerge only if the rupee appreciates to 62-63 per dollar. The Indian currency rose to 65.24 to a dollar yesterday. Nifty yesterday ended 3.81% higher than last week at 5680.40 and the BSE Sensex also ended up 3.49% week on week at 19270.06. Markets continued their rise from Thursday on improved sentiment. The CNX Metal Index ended up 3.83% from last week at 2019.15. Value buying of Tata Steel is likely to continue next week.

JSW Steel will be bidding for Stemcor's India assets in Odisha, for which bids have to be submitted by Sep 10. Analysts reiterated their neutral view on Steel Authority of India.

Steel Stocks Outlook for the week - 26.08.2013 - 30.08.2013

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Steel stocks are seen range-bound with a positive bias next week as the market has already factored in recent positives for the sector such as the hike in steel product prices and the better-than-expected Chinese manufacturing data. Since steel stocks have already been up last week, there is not much room for significant gains. Although the market has already factored in news of product price hikes by the steel companies, there is a chance that stocks might see some rise. However, the actual rise in price will be much lower than what has been announced due to current weak demand for steel. JSW Steel had announced a 4-6% price hike from Sep 1, and Jindal Steel and Power will announce their price hikes soon. The rest of the steel companies are also expected to follow suit. JSW Steel and Tata Steel look the strongest for next week and will outperform the rest of the sector.

Steel Stocks Outlook for the week: 19.08.2013 to 23.08.2013

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Most steel stocks next week are seen down tracking the larger market, absence of sectorspecific triggers, and weak demand for steel in overseas markets. However, many investors are still bullish on Tata Steel, which posted significantly better than expected Apr-Jun results this week. Indices are seen extending yesterday's sharp losses with chances of a recovery looking bleak. Investors will be keenly eying any move by the US Federal Reserve to taper stimulus programme.

Fundamentally, the steel sector continues to grapple with low demand, rise in coking coal prices, and a weak rupee. The sector's stocks are going to continue declining as they have in the past. Tata Steel had surprised this week by posting a 90% year-on-year increase in profits due to lower input costs, and cost savings, and an improved earnings before interest, depreciation, taxes, and amortisation.

Although the market had already factored this, its volume growth in India and improving outlook in Europe, keep Tata Steel's fundamentals positive. JSW Steel is seen down, and is not recommended until the market stabilises, adding that until JSW Steel acquires mines outside Karnataka, their sourcing-of-iron-ore woes will continue. On Jul 30, Chairman and Managing Director Sajjan Jindal had announced that iron ore

availability is still a concern for JSW Steel and that they are looking at strategic partnerships with iron ore mining companies.

Steel Stocks Outlook for the week - 18.07.2013 - 22.07.2013

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Stocks of major steel companies are seen bearish next week on expectations that earnings for Apr-Jun would be weaker compared with final quarter of 2012-13 (Apr-Mar). Seasonally, earnings for Jan-Mar are the highest in a financial year and so the Apr-Jun results being lower are not a surprise. Since the sentiment will drop, it will reflect in share prices of steel companies. Rise in volume of steel produced is also not expected to help companies as demand is relatively weak in the domestic market.

Volumes of Tata Steel or Steel Authority of India have outperformed government data of production growth, said ICICI Securities in its report. Tata Steel's volume grew 19% on year, while that of SAIL rose 14%. JSW Steel is expected to report a 4% year-on-year growth in Apr-Jun steel volumes. We expect sectoral earnings before interest, taxes, depreciation and amortisation to go down 15% year-on-year and 17% quarter-on-quarter.

Some are also of the view that the downside in select steel stocks may be limited next week following Karnataka Chief Minister K. Siddaramaiah's statement that the state government will shortly decide on new iron ore mining leases in the Bellary-Hospet region. JSW Steel and Kalyani Steel are among other primary steel producers that have interest in iron ore mines of Karnataka.

The Supreme Court in April allowed resumption of mining in 63 Category-B iron ore mines in the state, subject to reclamation, rehabilitation and compensation payments. After banning all mining activities in Karnataka's Bellary and Hospet regions in July 2011, the apex court had on Sep 3 last year partially lifted the ban by allowing conditional resumption of mining operations in category-A mines, where the Central Empowered Committee found no irregularities.

Steel Stocks Outlook for the week - 01 to 05.07.2013

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Stocks of major steel companies are seen slightly down next week due to sluggish demand for the commodity in the domestic market. Demand for steel usually takes a hit during Jun-Sep as monsoons lead to slowing of industrial activity across the country. This is expected to bring down demand for the alloy in the market, in turn impacting prices. Worries that the weakening trend in the rupee may hurt margins of companies in coming sessions is also another factor that could keep performance of steel companies muted during the week. The Indian steel industry relies on imports to meet its coking coal demand. Coking coal and iron ore are the two key raw materials used by domestic steel companies in steel making. On Wednesday, the rupee breached the 60 per dollar level to a record low of 60.7500, as heavy dollar purchases by oil importers and lack of support from the Reserve Bank of India near the psychologically critical level triggered stop losses of banks. We were also of the view that metal companies lack fresh triggers to allow stocks to move in the positive direction in coming sessions.

Steel Stocks Outlook for the week - 24.06.2013 to 28.06.2013

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Stocks of major steel companies are expected to move within a range with a negative bias on worries that the weakening trend in the rupee may hurt their margins in the quarter ended June. Though global coking coal prices have dropped 20%, domestic primary steel producers will not be able to reap the benefit due to the rupee's depreciation against the greenback. This is expected to hurt companies' margins. The Indian steel industry relies on imports to meet its coking coal demand. Coking coal and iron ore are the two key raw materials used by domestic steel companies in steel making. Continued subdued demand for the alloy in the domestic market is expected to keep performance of most steel companies muted through the week. Though steel demand in the country is more than it is globally, the strength in demand is not up to the mark. Stocks of Jindal Steel & Power are seen slightly weak following the show cause notice from the coal ministry. The ministry has zeroed in on 30 coal blocks where delay in commencing operations has been identified and has sent notices to the allottee accordingly. We are also of the view that a significant fall in stock prices of the steel companies in the week ended Friday could lead to bouts of short covering early next week, which however, will not last due to weak fundamentals.

Steel Stocks Outlook for the week - 17.06.2013 to 21.06.2013

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Stocks of major steel companies are seen down next week on continued weakness in fundamentals amid onset of monsoon. Fundamentals have already been dull in the domestic market due to slowing economic growth and with the onset of monsoon, industrial activity has also taken a hit. This is expected to continue in coming weeks as well. Domestic industrial activity usually takes a hit once monsoon arrives and this is usual annual phenomenon. The movement of the rupee against the dollar will also be eyed by the steel companies as nearly all rely on imports for coking coal to meet their requirements. Stocks of steel makers fell sharply in the week ended Friday on worries the companies' input costs may rise due to depreciation of the rupee against the dollar. A rise in input costs when demand is weak hurts steel companies' margins.

Stocks of Jindal Steel & Power are expected to consolidate at current levels after having declined nearly 13% week-on-week after the Central Bureau of Investigation registered a case against the Delhi-based company over coal block allocation. The probe agency is investigating alleged irregularities in the awarding of coal mining rights after the Comptroller and Auditor General of India report had pegged a notional loss of 1.86 trln rupees due to faulty allocation process. Stocks of Tata Steel Ltd are expected to move in a narrow range with a negative bias on reports that the company has announced capital expenditure of $2.5 bln-$2.7 bln for the current financial year amid challenging demand environment, both locally and globally, and a consolidated gross debt of $12 bln as on Mar 31.