Global financial services firm Nomura has maintained its 'Buy' recommendations for major Indian steel stocks, including Tata Steel Ltd, JSW Steel, and Jindal Steel. This bullish outlook on Indian steel stocks comes despite a backdrop of global headwinds, with Nomura emphasizing strong domestic price momentum as a key driver.
Strategic Positioning of Indian Steel Players
Nomura's analysis highlights that large, blast-furnace-based steel players are strategically better positioned compared to smaller, gas-based DRI (Direct Reduced Iron) producers. This advantage stems from the larger players' ability to partially substitute LPG usage with alternative fuels in their downstream operations, offering greater resilience against energy market fluctuations.
Global and Domestic Production Trends
Recent data from the World Steel Association indicates a continued global slowdown in crude steel production. In April, total crude steel output across 69 countries fell by 1.9% year-on-year to 153.4 million tonnes, following a 4.2% decline in March. China's production saw a 2.8% year-on-year decrease to 83.6 million tonnes, reflecting ongoing supply controls and softer market conditions.
In contrast, India demonstrated robust growth, with crude steel production increasing by 3.9% year-on-year to 13.8 million tonnes. This growth underscores India's strengthening position in the global steel market.
Market Dynamics in India
Nomura notes that flat steel prices in India are holding firm despite a continued correction in rebar prices. Domestic Hot Rolled Coil (HRC) prices remained stable week-on-week at Rs 58,700 per tonne, while rebar prices declined by Rs 900 per tonne to Rs 56,950 per tonne. This divergence indicates stronger momentum in flat products, leading to a positive flat-long spread of Rs 1,750 per tonne.
Despite recent corrections, India's HRC spot margin in May, though down by over Rs 1,700 per tonne month-on-month, remains significantly above the median margin level observed over the past two years. Margin expansion has been primarily supported by higher steel prices, even as input costs have seen a marginal sequential uptick.
Target Prices for Key Steel Stocks
Nomura has set specific target prices for the recommended Indian steel stocks:
- Jindal Steel: Rs 1,350
- JSW Steel: Rs 1,400
- Tata Steel: Rs 240
These targets are based on applying a slightly higher than mid-cycle one-year-forward EV/EBITDA multiple of 8 times, reflecting Nomura's positive outlook on the sector's earnings potential.