CHENNAI: Bolstered by strong global demand driving export orders, India’s top steel companies seem to have shrugged off the impact of the second Covid-19 wave. Both analysts and industry executives note that prospects for the sector look quite rosy, allowing them to not only increase capital expenditure (capex) to prepare for the expected surge in future demand, but also continue paring down debt. The large gap between international and domestic demand during this summer also led to a reversal of sorts, with India turning into a net exporter of steel.
Between April 1 and July 9, 2021, stock prices rose in tandem with rising global steel demand—Steel Authority of India (SAIL) rose 58.6%, JSW Steel by 45.42%, Jindal Steel & Power 14.7%, and Tata Steel 52.62%. Investors are banking on the increase in margins predicted by analysts as global economic recovery accelerates infrastructure creation, though concerns over the domestic market remain due to the “slow pace of vaccination, which may fail to prevent a third wave”, according to a senior executive in one of India’s private sector steel firms.
A Crisil Ratings review predicts that high steel prices will “lift the operating margin of primary steel manufacturers by 500 basis points (5%) this fiscal year”. “Global steel prices, rallying from last year’s lows, were up 2.1 times on-year in June, reaching the highs last seen in 2008. While some easing is likely over the rest of 2021, prices may average $750-800 per tonne, still up 60% on-year,” it added.
SAIL, which Motilal Oswal says, is expected to record best-ever EBIDTA of Rs 20,000 crore during the first quarter (Q1FY22). Private players such as Tata Steel, JSW Steel, and JSPL are also looking to expand capex.
Gaining strength