As the steel industry prepares for the upcoming results season, investors and analysts alike are keenly observing several key factors that could influence the performance of major ferrous players. With a focus on strong volumes, lower prices, and higher coking coal costs, the steel sector faces both opportunities and challenges in a volatile market.

One of the key factors contributing to the positive outlook for the steel sector is the expected increase in shipments among major ferrous players on a year-on-year (YoY) basis. Driven by growing steel consumption, the likes of Tata Steel India and JSW Steel's Indian operations have witnessed a surge in dispatches and production, with YoY growth rates of 18 percent and 10 percent, respectively.

However, the surge in steel exports from China amid weak global steel demand has led to a downward pressure on global steel prices. As a result, realisations are expected to limit topline growth, with prices projected to be lower sequentially and around 15 percent lower YoY. This situation has also impacted domestic steel prices.

While coking coal prices have corrected sharply, the costs for major ferrous players could still see an increase, varying between $6-20 per tonne depending on the inventory being carried. This aspect could have implications on the bottom line and overall profitability of steel companies.

Brokerage firm ICICI Securities has provided insights into the expected EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) per tonne for various leading steel players.

Tata Steel India's EBITDA is predicted to decline by over 40 percent on a YoY basis, with its European operations continuing to report losses due to lower volumes resulting from shutdowns in the quarter. JSW Steel could experience a 27 percent correction in EBITDA per tonne on a quarter-on-quarter (QoQ) basis, while SAIL's EBITDA per tonne may plummet by 50 percent sequentially and YoY.

ICICI Securities also highlighted key stocks to watch for during the upcoming result season in the metal space.

JSPL is expected to deliver the best performance among major steel players, with its reported EBITDA per tonne likely to remain flat QoQ compared to declines for others. Additionally, Jindal Stainless Ltd (JSL) is projected to achieve an EBITDA per tonne in excess of Rs 20,000, while NALCO is expected to outperform Hindalco, primarily due to captive mining at Utkal D coal block.

In terms of investor sentiment, the market seems to favor ferrous players over non-ferrous ones. Ferrous players are expected to benefit from improving spot spreads and stronger traction in the domestic market. On the other hand, non-ferrous stocks may face pressure due to a market surplus in key commodities, influenced by subdued global demand.

Amit Dixit, Analyst, ICICI Securities expects Tata Steel to report a bit of an increase in realisations – around Rs 500 per tonne, mainly because of the contracts.

JSPL and NALCO would perform well this quarter, he said.

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(Edited by : C H Unnikrishnan)