Metal stocks in the last few days surged the most on renewed hopes of positive developments between the US and China. China remains a vital market for steel production and export. Thus, there was a surge in the Nifty metal index of nearly 8 percent over the last month as steel production in China rose 6 percent YTD.

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According to a report by Edelweiss, the latest domestic hike follows the global increase in prices and has lifted spreads by 5-20 percent across regions. Three main reasons behind the uptrend in the pricing visible globally are i) US prices are currently $600/tonnes, up 8 percent from its low in October. ii) In Europe as well, the price increase of nearly 4 percent (to $485/ tonnes) seems to have been absorbed well. iii) Chinese domestic prices have picked up RMB100/tonnes to nearly RMB3,700/tonnes over the three-week period.

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The brokerage also said that post price hike, the hot-rolled coil (HRC) prices are still about Rs 1,100/tonnes below the import parity level. With prices remaining flat in South Korea and Japan – major exporters to India – over the past six weeks, further domestic price increases may attract imports unless demand conditions improve in Southeast Asia.

That said, domestic demand seems to be picking up in spite of successive price hikes in longs and flats; in fact, price hikes could be sharper if restocking picks up further, added the report.

Edelweiss continues to prefer Jindal Steel in the ferrous space while maintaining ‘hold’ on Tata Steel and ‘reduce’ on SAIL.

In another report by Jefferies, it said that China’s crude steel production has reported a rise of 6 percent YTD, implying annualised production of c.1 billion tonnes. Declining domestic raw material prices is likely to positively impact domestic spreads. Amid weak domestic demand, Indian steel majors resorted to exports (since October 19) to liquidate inventories.

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As the US and China repair their relations with each other, there’ll be more certainty on the demand outlook, and then the prices can be locked in a definitive manner. Jefferies in its report chose Tata Steel as the preferred pick from the sector.

First Published:Nov 27, 2019 2:03 PM IST