Stocks of major steel companies are expected to remain under pressure next week, despite the declining trend in prices of key raw material prices used by the sector, mainly because of weak domestic demand. There is no pick up in demand for steel in the domestic market. Due to this, capacity utilisation of steel companies has come down to 80% from 85% earlier. This is bound to affect steel companies negatively.
Prices of coking coal and iron ore, the key raw materials used in making steel, have fallen on global economic concerns. Overseas raw material prices have come down and so have fallen here (locally) too but what is the point if there isn't enough demand for steel.
JSW Steel's merger with JSW Ispat Steel will lead to debt swelling and this is certainly not good for the company. Besides, irrespective of fall in iron ore prices, JSW Steel's iron ore cost will remain high due to irregular iron ore supply, which is negative for the stock.
The valuations for public sector undertakings such as SAIL are low because their projects are likely to get delayed. Tata Steel's 3-mln-tn Jamshedpur expansion is likely to improve volumes and make the company profitable.
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