Party may be over for steelmakers — here's what it means for investors

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India’s steel giants have lost about one fifth of their market value in just one month, as they scramble to protect their margin against low alloy rates and weak demand though easing raw material costs lend some support. And analysts are seeing more pain ahead for investors.

Stocks of Tata Steel, JSW Steel, Jindal Steel and SAIL have burned 21-39 percent of investors’ money in three months.

Tata Steel’s prive-to-book (P/B) value ratio, for instance, is near levels seen during the global financial crisis — it is a financial ratio that determines the money investors are willing to pay for a slice of a company’s assets.

According to JPMorgan, Tata Steel shares are near the lows of the 2008 global financial crisis in P/B terms, even as its net debt is 50 percent lower and India capacity is up 2.5 times.

The plunge in steel stocks comes amid:

  • A downtrend in benchmark alloy rates
  • Export duty: In May, the government imposed an export duty on certain iron and finished steel products. 
  • Low China demand on account of COVID-19
  • Fears of economic slowdown

So why is steel falling?

An overall environment of risk aversion has been the key headwind for steel prices amid nervousness about a global growth slowdown and forceful rate hikes by key central banks to fight rising price pressures, Sugandha Sachdeva of Religare Broking told

“Besides, lockdowns in China have dampened the demand prospects for steel and led to profit booking in the ferrous metal from its March peak. Housing market in the US is also flagging signs of a slowdown which does not bode well for steel rates going ahead,” she said.

Higher steel rates hurt the amount of money earned on every tonne of steel sold by manufacturers. 

Many analysts don’t expect steel rates to revisit their recent highs anytime soon.

“Once the monetary tightening concerns subside and inflation eases, we may see renewed buying interest in steel, but we don’t envisage the prices to surge towards March highs at least in the near term,” added Sachdeva, Vice President-Commodity and Currency Research at Religare Broking. 

Some even expect a significant correction in the rates from the current levels. 

“All metals are in a downward trend and weakness of a further 10-15 percent is possible from current levels,” said Manoj Kumar Jain, Head-Commodity and Currency Research at Prithvi Finmart.

That might spell more trouble for investors with steel-heavy portfolios.

Steelmakers’ expansion plans may be impacted if duties are maintained in the medium term, according to Icra. Almost 95 percent of the country’s finished steel export basket has been hit with 15 percent export duties, the credit rating agency said.

A silver lining is the softer iron ore price, which partly cushions the decline in steel rates. Iron ore is a major input in the making of steel.

Analysts see margin pressure continuing for steelmakers over the next few months.

Here’s how brokerages are viewing major steelmakers:

Tata Steel

JPMorgan has lowered its earnings per share estimates for the Tata group steel giant by 34 percent for the year ending March 2023, and 25 percent for the next year.

Yet, analysts’ targets for Tata Steel imply a 15-66.5 percent return from Thursday’s closing price.

Brokerage Rating Target price
JPMorgan Overweight 1,400
Citi Buy 1,085
Motilal Oswal Neutral 965

JSW Steel

Analysts’ targets suggest up to 10 percent upside in JSW Steel as of Thursday.

Brokerage Rating Target price
Motilal Oswal Neutral 600
Geojit Hold 614
Prabhudas Lilladher Reduce 560

Motilal Oswal expects coking coal rates to cool off in the next 3-6 months, the leading to a better margin for the company in the second half of the year ending March 2023.


Brokerage Rating Target price
ICICI Direct Hold 80
Ashika Buy 115
Motilal Oswal Buy 130


Brokerage Rating Target price
Motilal Oswal Buy 440
ICICI Securities Reduce 350
Prabhudas Lilladher Buy 555

Girish Pai, Head-Research at Nirmal Bang Institutional Equities, is cautious on some of the global commodity stocks.

“Global growth is going to be under pressure probably in the near term… I think that a lot of global cyclicals will be under pressure and the China-related situation around COVID will also put pressure on some of global commodities,” he told CNBC-TV18.