Metal stocks were seen flexing muscle on the bourses on Friday as a faster-than-expected growth in the December quarter (Q3) gross domestic product (GDP) boosted sentiment.
The Nifty Metal index rallied 3.4 per cent in the intraday trade to 8,199 as against 1.5 per cent rise in the benchmark Nifty50 index. At 1:25 PM, SAIL, was ruling nearly 7 per cent higher, followed by Welspunn Corp (up 5.4 per cent), Tata Steel (5 per cent), JSW Steel (3.45 per cent), Ratnamani Metals (3 per cent), Hindalco (2.9 per cent), and Jindal Steel (2.8 per cent).
Adani Enterprises, Vedanta, Hindustan Copper, Hindustan Zinc, NMDC, and Nalco were trading higher in the range of 0.2 per cent to 2 per cent.
India's GDP growth rate in the quarter ending December 31, 2023 came in at 8.4 per cent, higher than the Reserve Bank of India's (RBI's) estimate of 6.5 per cent, according to National Statistical Office (NSO) of Ministry of Statistics and Programme Implementation (MoSPI).
Moreover, the economy remained resilient with robust 7.6 per cent growth rate of GDP so far in FY 2023-24, over and above 7 per cent growth rate in FY2022-23
Double-digit growth rate of construction sector (10.7 per cent), followed by a good growth rate of Manufacturing sector (8.5 per cent) have boosted the GDP growth in FY 2023-24.
Additionally, India's manufacturing sector grew at the fastest pace in five months in February, according to a private survey. India's HSBC India Manufacturing PMI came in at 56.9 in February, the fastest since October last year when it was 55.5. In January, it was 56.5.
"The HSBC final India Manufacturing PMI indicates that production growth continued to be strong, supported by both domestic and external demand," noted Ines Lam, economist at HSBC.
Analysts believe the large public and private capex and continued growth in the underlying steel consuming sectors in the economy to bode well for the sector.
"With the country's GDP growth forecasts at 6.3 per cent over the next two years, we expect the country's steel demand to grow at 6.6 per cent CAGR over FY23-26 to reach 145 millon tons of finished steel demand. To cater to this demand, leading steel players have mapped out expansion plans, adding 27 million of crude steel capacity by FY26 to 191 million tons. Driven by the expansions, we expect JSW Steel/Tata Steel/JSPL/SAIL to deliver India volume CAGR of 10/8/12/4 per cent over FY23-26," analysts at Haitong Securities said in their coverage initiation report.
Individually, JSW Steel is adding the largest capacity of 8.8 mn tons by FY26, followed by Jindal Steel and Power (JSPL) adding 6.3 mn tons, Tata Steel adding 5.7 5mn tons, and Steel Authority of India (SAIL) adding 2 mn tons of capacity.
The brokerage has initiated coverage on JSW Steel, Tata Steel, and JSPL with an 'Outperform' rating given the upcoming steel capacities and initiated coverage on SAIL with an 'Underperform' rating given its limited capacity addition.
Meanwhile, the ex-Mumbai HRC prices rose by 2 per cent Y-o-Y/Q-o-Q each in Q3FY24, averaging around Rs 57,374/t. Chinese HRC prices, however, remained range-bound, with a slight Y-o-Y increase of 1 per cent and a Q-o-Q decrease of 0.8 per cent.
"We expect steel spreads to come under pressure or could remain flat QoQ in Q4FY24, primarily led by the surge in coking coal prices, while steel prices remains subdued," said analysts at Axis Securities.
The China factor
The Chinese steel demand in CY23 has seen a 2.6 per cent Y-o-Y dip mainly led by the negative performance of the real estate industry whose FAI declined ~9 per cent for the year. With no policy for demand stimulus or steel supply announced yet, the rising exports from China pose a threat for the steel globally including India's steel realisations and spreads, haitong said.
Data released on Friday showed that China's manufacturing activity in February shrank for a fifth straight month, raising pressure on Beijing to roll out more stimulus measures as the parliament prepares for a key annual meeting next week.
The official manufacturing purchasing managers' index (PMI), compiled by the National Bureau of Statistics (NBS), fell to 49.1 in February from 49.2 in January with a sizeable drop in the output component.
However, a survey by the Caixin/S&P Global released just after the official PMI showed manufacturing activity expanded steadily as both production and new orders grew faster.
Taken together, the PMIs highlighted an uneven economic recovery, maintaining pressure on authorities as markets clamour for bolder stimulus measures and reforms to safeguard China's long-term growth potential.
"We believe steel demand in China will remain weak especially due to no respite in the real estate sector, however, some of the impact will be arrested by the stable to positive performance of other steel consuming sectors. Further, we closely monitor the Chinese government’s commentary on the steel supply policy for CY24. Without supply curbs or import tariffs by nations including India in place, the exports are expected to continue in CY24. This poses a risk on the Indian steel company’s spreads led in case of sharp price declines," Haitong cautioned.