Steel Stocks Outlook for the week: 07 - 11.01.2013

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Stocks of major steel companies are seen down slightly over the next few sessions as fundamentals remain weak, and profit booking is likely to kick in because of the recent rise in the stocks. Weak demand for steel amid high supply will weigh on these stocks. There is nothing happening in the steel sector. Recently, stocks of steel companies had risen and so, profit booking is expected. This week, stocks of major steel companies such as Steel Authority of India, Tata Steel, JSW Steel, and Jindal Steel and Power gained 1-5%. The stocks got a boost as investor sentiment improved when US policymakers cleared a bill to delay the spending cuts and tax hikes that were to come into effect in the country on Jan 1.

Also, data from China showing further improvement in the country's non-manufacturing activity raised hopes of economic revival there. If China's economy recovers, the country's demand for commodities is likely to go up. China is the world's largest consumer and producer of steel. We recommend sell in all steel stocks at current levels. JSW Steel raised the prices of its steel products from Jan 1 as global prices of the alloy are firm, and the company is facing upward pressure on input costs. Steel companies' (Oct-Dec) earnings are also not expected to be very good, which may keep the overall tone bearish in the stock(s).

Steel Stocks Outlook for the week: 31.12.2012 - 04.01.2013

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Stocks of major steel companies are seen rangebound over the next few sessions amid lack of fresh triggers and on weak fundamentals. Continued weakness in domestic steel demand coupled with relatively higher supply is expected to keep the tone slightly subdued. However, a significant fall in prices of stocks of the steel companies is unlikely, as the demand-supply equation has been unstable for quite some time now. Steel stocks will be market driven and there is nothing major that is likely to happen in the market as well. Recently, Fitch Ratings downgraded steel-giant ArcelorMittal's long-term issuer rating to 'BB+' from 'BBB-'. Luxembourg-based ArcelorMittal is the largest steel producer in the world. The downgrade by the ratings agency reflects the more challenging than previously expected outlook for Western European steel markets in 2013, Fitch said in its release.

Steel Stocks Outlook for the week: 24-28.12.2012

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Stocks of major steel companies are seen slightly weak over the next few sessions as Fitch Ratings downgraded steel-giant ArcelorMittal's long- term issuer rating to 'BB+' from 'BBB-. The rating by Fitch (on ArcelorMittal) will drag sentiment in the steel stocks which were already posed for a profit booking due to some gains noted this week. Luxembourg-based ArcelorMittal is the largest steel producer in the world. The downgrade by the ratings agency reflects the more challenging than previously expected outlook for Western European steel markets in 2013.
     
JSW Steel has requested the Central, and Karnataka governments to take immediate steps to ensure the iron ore mined at the four operational mines in Karnataka is auctioned. It has also sought auction of low-grade iron ore lumps to address the shortage.The company produces steel at its Vijaynagar plant in Karnataka. JSW Steel produced 600,000 tn of crude steel in November, unchanged from the same period last year.

Steel Stocks Outlook for the week (17 -21.12.2012)

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Stocks of major steel companies are seen down in the next few sessions as demand for the alloy remains low, and the companies' Oct-Dec earnings are expected to be weak. In Apr-Nov, growth in domestic consumption of steel was 4.2% at 48.4 mln tn. Local consumption had grown 7.6% in Apr-Jun and 5.1% in Apr-Sep. We checks paint weak demand outlook, given subdued order bookings in auto and infrastructure and dearth of enquiries. Despite low demand, most steel producers have not lowered their capacity utilisation, which coupled with increase in imports, has led to a supply glut. This gap in demand-supply is weighing on the stocks of steel companies. On the technical charts, however, the trend in these stocks is positive in the next few sessions. Short covering is likely in steel companies in coming sessions.

Steel Stocks Outlook for the week (10 - 14.12.2012)

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Stocks of major steel companies are seen in a range in the coming sessions despite a rise in raw material prices as continued weakness in demand for the alloy may nullify the impact of the price rise. Overall, we do not see any big movement as steel demand continues to remain weak in the domestic (market). Low domestic demand for steel has increased supply of the alloy as most producers have not reduced their plant capacity utilisation. The consequent imbalance in demand-supply scenario continues to weigh on steel companies to some extent. Technically, steel companies are seen performing better in coming sessions. SAIL is expected to find support at 80 rupees and face resistance at 86 rupees next week. JSW Steel may trade in 745-775 rupees range. There seems to be uncertainty in the JSW Steel stock. It is mainly because of lower availability of iron ore for the company's plant in Karnataka. We are currently working in an environment where more mines of category 'A' need to be operational in Karnataka, category 'B' mines (in Karnataka) are not open at all and NMDC has lowered it(s) iron ore production. Tata Steel is likely to find support at 388 rupees and face resistance at 410 rupees.

Steel Stocks Outlook for the week(03-07.12.2012)

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Stocks of major steel companies are seen consolidating in the coming sessions tracking the trend in the domestic market, where the previous three sessions rally is unlikely to sustain. Movement in steel stocks will be largely market driven next week on continued weak fundamentals of the sector that have already been discounted.

Domestic share market is expected to consolidate next week as it has already risen significantly. Both, Nifty and the Sensex saw a 4.5% rise this week. The market will be closely eyeing Parliament's debate and voting on 51% foreign direct investment in multi-brand retail next week.

In the steel sector, low domestic demand for steel has increased supply of the alloy, as producers have not reduced their plant capacity utilisation. The consequent imbalance in demand-supply scenario continues to weigh on steel companies to some extent. More than any steel stock, we would recommend buying in iron ore miner NMDC (Ltd).

Though high iron ore pricing by NMDC is not allowing it to sell much of the ore in the market, the issue seems to be short-lived, as compulsory buyers will have to make some purchases. Last week, NMDC's e-auction for iron ore lumps found few takers with less than one-tenth of what it put up for sale changing hands due to high pricing.

NMDC has increased the base price for iron ore having more than 60% ferrous content, as the requirement for this is higher than other grades. Price level offered by the miner also is above international iron ore prices.

Steel Stocks Outlook for the week (26-30.11.2012)

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Stocks of major steel companies are seen rangebound in coming sessions because of continued weak fundamentals and lack of fresh triggers to initiate movement on either side of price scale. Low domestic demand for steel has increased supply of the alloy, as producers have not reduced their plant capacity utilisation. The consequent imbalance in demand-supply scenario is likely to weigh on steel companies to some extent.

Weak fundamentals is not a new scenario and so steel companies may not see a sharp fall, said analysts. However, the tone will remain bearish. Though China is beginning to show some signs of recovery, there is a lot that needs to improve in the market for the metal sector to perform. China is the world's largest producer and consumer of steel, and therefore its steel sector is closely eyed by the rest of the world. On Thursday, China's Purchasing Managers' Index for November was 50.4, compared with a final reading of 49.5 in October, signalling expansion for the first time in about 13 months.

China's steel sector may take a while to show improvement. Until then, the global steel industry will be in a wait-and-watch mode.

Stocks of the country's leading primary steel producer, Tata Steel, has already touched its lowest level on dismal financial results. The company's
stocks are expected to now stabilise at the current levels until some fresh news comes in. Tata Steel reported a net loss of 3.64 bln rupees for Jul-Sep as against a net profit of 2.12 bln rupees in the corresponding quarter last year.

Steel Stocks Outlook for the week (12-16.11.2012)

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Stocks of major steel companies are expected to fall further in the coming sessions in the absence of fresh triggers on the fundamental side, and due to disappointing quarterly earnings from Tata Steel. Dismal results from the country's leading primary steel producer, Tata Steel, are expected to keep the sentiment low next week.

Tata Steel, the world's eighth-largest steelmaker by output, posted a net loss of 3.64 bln rupees for Jul-Sep as against a net profit of 2.12 bln rupees in the corresponding quarter of the previous year. Weak steel prices and slowdown in European economy hit company's European operations," Kaushik Chatterjee, chief financial officer of Tata Steel, said during a post-earnings conference call on Friday. The company's European operations account for two-thirds of its total production capacity. In the long-term, we remain bullish on Tata Steel as its upcoming Jamshedpur plant is expected to add to its domestic volumes. Tata Steel's proposed 3-mln-tn steel plant in Jamshedpur is scheduled to be commissioned in Jan-Mar.

Steel Stocks Outlook for the week (05-09.11.2012)

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Stocks of major steel companies are seen rangebound next week in the absence of fresh triggers on the fundamental side. However, investors will closely eye Tata Steel Europe's production for cues on demand-supply scenario in the region

Tata Steel will detail its Jul-Sep earnings on Tuesday. Tata Steel, the world's eighth-largest steelmaker by output, acquired Anglo-Dutch steelmaker Corus in 2007 and renamed it Tata Steel Europe. The company's European operations account for two-thirds of Tata Steel's total production capacity. Tata Steel Europe has been posting a fall in earnings over the past few quarters, as the Eurozone financial crisis has hit industrial output and dried up demand. Nothing much has changed in the steel sector in the last few weeks. The outlook for steel sector continues to remain lacklustre in coming sessions.

Steel Stocks Outlook for the week (29.10.2012 - 02.11.2012)

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Stocks of major steel companies may continue to decline next week on the back of weak fundamentals and expectations of disappointing Jul-Sep earnings. We believe steel prices in India have more to fall, in it Domestic demand for steel is bearish, but steel producers have not reduced plant capacity utilisation. This is leading to an imbalance in the demand-supply scenario of the alloy, in turn keeping sentiment weak for the sector.

There is inventory build-up with steel producers and this will continue to be the situation for some time now since demand is weak. Due to this, the overall outlook for the sector is dull. The global steel sector is also seen weak as industrial activity in leading steel consuming countries remains low because of worries over economic recovery across globe. China is the world's largest consumer and producer of the alloy. Because of this, the demand-supply equation in the country impacts global steel prices.

Steel Stocks Outlook for the week (22-26.10.2012)

Stocks of major steel companies may decline slightly next week as they are expected to report disappointing Jul-Sep earnings amid continued sluggishness in demand. Global prices of steel have declined amid slowdown in the world economy, and reduced industrial activity in China. China is the world's largest consumer and producer of the alloy. Due to this, the demand-supply equation in that country has an impact on global prices of steel. In China, steel prices are currently down 25% from a year ago.

Tata Steel's European operations may have faced margin compression in Jul-Sep. Last week, Tata Steel had said it might cut more jobs at its European subsidiary Tata Steel Europe under a plan to make the arm leaner and more efficient. Over the past few quarters, Tata Steel Europe's earnings have been falling as the debt crisis in the Eurozone has slowed industrial activity in the region and dried up demand. European operations account for two-thirds of Tata Steel's total production capacity. JSW Steel stocks will face pressure also from media reports the Central Bureau of Investigation has filed a charge-sheet against the company's Chairman and Managing Director Sajjan Jindal in a probe into illegal mining in Karnataka. The company has said it would challenge the charges in court.

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Steel Stocks Outlook for the week (08 - 12.10.2012)

Stocks of major steel companies are seen rangebound next week, in the absence of fresh sector- and market-specific triggers. In terms of new reforms, the government has already done what it had to. Now the question is what next. There seems to be no positive or negative news coming from the government. Because of this, the overall mood in the market may cool down in coming sessions. The government Thursday announced more reforms and cleared amendments to a series of pending bills, including those related to pension and insurance. The Union Cabinet approved raising the foreign direct investment limit in the insurance sector to 49% from 26%. It also approved linking the FDI cap in the pension sector to that in the insurance sector.

Though sentiment in the steel sector continues to look subdued, remain bullish on Tata Steel Ltd. The company's upcoming 3 mln tn steel plant in Jamshedpur is expected to increase sales volumes, which in turn is seen improving its profitability. The domestic steel sector has five main regulatory drivers such as government's iron ore mining clean-up drive, coal mine de-allocation, local disturbances, new mining bill, and process of giving clearances to new mines and projects. The government's iron ore mining clean-up drive will continue to hurt JSW Steel Ltd as it lacks captive mines to meet its demand, while Tata Steel, Steel Authority of India, and Jindal Steel & Power Ltd would benefit since constrained supply of ore gives these companies a competitive advantage given their captive mine sources.

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Steel Stocks Outlook for the week: 01.10.2012-05.10.2012

Stocks of major steel companies are seen gaining slightly next week tracking domestic equities, which may trade in the positive zone following steps taken by the government to boost the economy, and hopes that China may announce stimulus measures. China is the world's largest producer and consumer of steel. The upside in the steel stocks, however, is seen limited in coming sessions as the sector lacks independent positive factors.

In the global market, steel is in over capacity and at the same time iron ore prices are weak all this turns out to be disadvantageous for steel companies due to which there is no much upside seen in steel stocks (in coming sessions).

There is no sector specific news that can lend support to steel companies as the demand and supply scenario is discouraging. Weak demand due to slowing global economic growth has led to higher supply in the market.

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Steel Stocks Outlook for the week: 17.09.2012 - 21.09.2012

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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Steel Stocks Outlook: 10-14.09.2012

Stocks of major steel companies are seen slightly up this week as sentiment is seen positive in the global markets on the European Central Bank's bond-purchase plan and China's infrastructure stimulus. On last Thursday, the European Central Bank unveiled an unlimited bond-buying programme wherein it would purchase bonds of Eurozone countries to clamp down on their surging cost of borrowing. Last saturday, China, the world's largest producer and consumer of steel, announced large infrastructure projects as part of its new stimulus package to revive economic growth in the country. China's stimulus package and Europe taking efforts to settle immediate debt concerns in the region is surely going to push up stocks of steel companies in coming sessions.

However, Domestic steel companies are not expected to gain much from the Supreme Court's decision to allow iron ore mining in the 'category A' mines in Karnataka, as the total quantity of ore from these mines would be only about 5 mln tn. The situation is not at all good in the local iron ore industry 5 mln tn from Karnataka is nothing, had it been 20-25 mln tn it would have been positive for steel producers. In August last year, the Supreme Court banned iron ore mining in Karnataka following rampant illegal mining in the mineral rich state.

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Steel Stocks Outlook for the week (03.09.2012-07.09.2012)

Stocks of major steel companies are seen down next week on account of mounting inventories and minimal demand from government projects. Steel dealers are reluctant to build any further stock with minimal project demand visibility as government project announcements have dried up. There is also uncertainty and caution in the steel market ever since the CAG (Comptroller and Auditor General) report on coal has been released. The overall sentiment is depressed in the steel sector. Coking and thermal coal is one of the key raw materials used by the steel producers in the making of the alloy.

The government auditor had earlier this month said in its report that lack of transparency in the allocation of coal blocks to private players resulted in a loss of 1.86 trln rupees to the exchequer as on Mar 11, 2011. However, expect the recent capacity cuts by Chinese mills to arrest the fall in global steel prices, which in turn may limit the declining trend in the local steel market. A likely announcement by JSW Steel Ltd to merge its subsidiary JSW Ispat Steel Ltd with itself on Saturday is seen as a non-event by the market. JSW Steel currently holds 49.3% stake in JSW Ispat.

(www.rupeedesk.in)

Steel Stocks Outlook for the week (27-31.08.2012)

Steel Stocks Outlook for the week (27-31.08.2012)

Stocks of major steel companies are seen down next week due to the dull demand scenario which has led to inventory build-up, in turn disturbing the domestic steel demand-supply equation. Worry over economic recovery in leading steel consumers such as China and Europe has dampened demand for the commodity in the global market, consecutively infusing a subdued trend in the local steel market. Due to mounting inventories, large domestic steel producers are offering products at discounted rates and some also offering cash-back offer in order to promote sales.This clearly shows there is no much demand for steel in the domestic market. Currently, Tata Steel is offering 2% cash back on every purchase of Tata Tiscon TMT bars, said media reports.

However, JSW Steel shares look positive next week. We recommend buy in JSW Steel above 759 rupees which is also a good resistance level. Support for the stock is seen at 706 rupees. In the current scenario, where local steel demand is dull and JSW Steel is facing shortage of good quality iron ore, the company has been performing well. On technical charts, Tata Steel and Steel Authority of India look weak in coming sessions. Tata Steel may find support at 382 rupees and face resistance at 415 rupees, while Steel Authority of India may trade in 81-89 rupees range.

Steel Stocks Outlook for the week (13-17.08.2012)

Stocks of steel companies are likely to trade in a narrow range next week tailing the key indices and market will also eye Tata Steel Ltd's Apr-Jun earnings due for release on Monday. Key indices may see a rangebound trade next week due to lack of triggers. Nifty is seen trading in range of 5250-5380.
   
The steel maker's consolidated net sales for the reporting quarter are seen down 1% on year at 326.57 bln rupees due to flat sales volumes and lower realisation from its European operations. On a sequential basis, the company's consolidated net profit is seen rising 49% due to improved realisation in India as well as in Europe. Overseas operations mainly in Europe are likely to show some improvement on QoQ (quarter-on-quarter) basis due to slightly higher realisations and lower coking coal cost. Moody's Investors Service, this week revised the outlook on Tata Steel's Ba3 credit rating to negative from stable and also cut the rating of its European arm Tata Steel UK Holdings Ltd to B3 from B2. Last week, Steel Authority of India Ltd disappointed the street with its lacklustre earnings.

In a post-earnings report, while SAIL has disappointed time and again with delays in expansion plans, the company now seems progressing well on the expansion projects.  The stock has underperformed primarily on account of various delays, and we believe commissioning of these projects would be a key milestone awaited by investors.

(www.rupeedesk.in)

Steel Stocks Outlook for the week (06 - 10.08.2012)

Stocks of steel companies are seen trading sideways to down on subdued demand, and are likely to take cues from Steel Authority of India Ltd's Apr-Jun earnings to be announced Monday. The state-owned steel producer's net profit is seen growing 11% on year to 9.28 bln rupees on better realisations. The company's net sales are seen rising 2% on year to 110.2 bln rupees. EBITDA (earnings before interest, tax, depreciation, and amortisation) is expected to increase by 21% on year on the back of decrease in raw material costs. We expect EBITDA margin of 14%, up by 200 bps on year. This week, Bhushan Steel Ltd reported a 2% on-year fall in Apr-Jun net profit at 2.06 bln rupees mainly due to high interest payments on loans.
Over the company's 200-bln-rupee debt, its high interest and depreciation costs, which are erasing a good chunk of its profit margins. Bhushan Steel's net sales rose about 27% to 28.41 bln rupees in Apr-Jun against 22.31 bln rupees a year ago. Steel companies have been struggling with low demand due to overall slowdown in domestic economic activity. Monsoon is a seasonally weak period for steel makers as construction activities decelerate during this time. Over slowing steel demand across the country. In absence of any meaningful demand pickup as well (as) continued margin loss over last two years. Build any further stock of steel due to increasing inventory in the system, and lack of project demand visibility. Delay in government project announcements is a key reason for lack of demand visibility.

While hope of project capex revival lingers by October, clearly we are moving through a tricky inventory de-stocking cycle, which can lead to erratic price movements. The prices of both long and flat products in eastern parts of India have dropped by 2,000 rupees per tn over the last three months. In Mumbai, hot rolled and cold rolled steel prices have dropped by 1,000 rupees and 200-500 rupees per tn respectively, over the last 15 days. Shutdown of Maruti Suzuki Ltd's Manesar facility has also affected the demand for flat steel products.

Steel Stocks Outlook for the week (30.07.2012 - 03.08.2012)

                Stocks of steel companies are seen rangebound next week in the absence of any stock-specific triggers and will track key indices. The market trend will mainly depend on Reserve Bank of India's first-quarter monetary policy review on Tuesday. This week, Jindal Steel and Power and JSW Steel reported their Apr-Jun earnings. Jindal Steel's earnings were hit mainly due to a provision of 5.74 bln rupees on account of impairment of its investment in Bolivia. Earlier this month, the company terminated its iron ore mining and steel manufacturing projects in Bolivia terming its government non-investor friendly. The company's consolidated net profit fell 59% on year to 3.85 bln rupees while net sales rose 18.9% on year to 46.80 bln rupees.

                    Considering the delay in projects, heightened regulatory risks and uncertainty on international operations. JSW Steel reported a sharp 90% year-on-year decline in consolidated net profit at 500 mln rupees due to foreign exchange and associate company losses. However, strong sales volume and realisation lifted consolidated net sales by 33% on year to 99.02 bln rupees. Despite iron ore shortage the company posted a strong operational performance. The company's consolidated operating profit was up 33% on year at 19.1 bln rupees. JSW Steel's FY13 EBITDA estimate by 8% on strong Apr-Jun margin performance.

                    The structural story (of the company) remains clouded by possible delays in ramp-up of mining in Karnataka, high operating and financial leverage further weakened by structural weakness in global steel margins, and possible headwind of JSWS-Ispat Industries' merger. The market will now await earnings of Tata Steel and Steel Authority of India scheduled over the next fortnight, which will decide the trend for the steel stocks going forward. Steel companies will continue to face subdued demand over the next two to three months due to poor monsoon and macro economic uncertainties. JSW Steel's Commercial Director Jayanat Acharya expects demand to revive in the second half of the current financial year. He expects prices to remain stable in the next few months.

(www.rupeedesk.in)