Steel
Stocks Outlook for the week (09 - 13.07.2012)
Stocks of steel companies are
likely to fall next week as local and global demand for the metal is
weak. Although demand for steel grew at a robust pace in the first two
months of this financial year, it may slow in the coming months because of
southwest monsoons. In Apr-May, steel consumption in India grew 8%
from a year ago to 11.80 mln tn, the steel ministry's joint plant committee
said in a report. Construction activity usually comes to a halt during the
monsoons, affecting demand for steel in the local market. Demand from the
automobiles sector, another key consumer of the metal, has remained sluggish as
several manufacturers are resorting to production cuts. Also, the Society of
Indian Automobile Manufacturers has lowered its estimates on growth of
passenger car sales in the country. Global demand for steel remains weak
due to worries over the economy of the Eurozone, and slowdown in industrial activity
in China .
Global prices of steel continued their fall this fortnight due to weak demand
and high output.
This week, domestic steel
companies got some relief as some iron ore mines of Karnataka are expected to
resume operations next month. Steel companies were facing severe shortage of
iron ore after mining in the state was banned last August. These mines are
likely to produce 6 mln tn iron ore annually. Companies such as JSW Steel,
and Kalyani Steels, which had to cut production in the past one year because of
ore shortage, expect their operations to return to full capacity in two-three
months. Steel companies reporting flat-to-slightly positive growth for
Apr-Jun. Sequential improvement in the companies' profitability due to increase
in long and flat product prices, ICICI Securities expects their realisations to
remain flat.
