BSE Metal index soars 4.4%; Tata Steel and JSW hit fresh all-time highs

Shares of steel cos have been on a tear recently, owing to a sharp rally in steel prices. Price of Asian flat HRC has shot up over 20% while that in Europe has gained 40% this calendar year

The BSE Metal index on Thursday soared 4.4 per cent extending this month’s run to 11.5 per cent. Shares of steel companies have been on a tear in recent months, underpinned by a sharp rally in steel prices. The price of Asian flat hot rolled coil (HRC) has shot up more than 20 per cent while that in Europe has gained over 40 per cent in the current calendar year.
 

The gauge for metal company stocks has risen 41 per cent this year. In comparison, the benchmark Sensex is up just 4 per cent.
 

The BSE Metal index was largely flat in March as steel prices had softened around the Chinese New Year. However, with prices once again headed northwards, investors have begun to pile on to metal company stocks.
 

“The post-China rally in Asian steel prices has not only eased concerns on near-term sustainability of Indian prices but now provides room for latter to rise more. We upgrade FY22-23 EBITDA for Tata Steel and JSW Steel by 2-7 per cent. If Indian/EU spot steel prices sustain, we see further 66 per cent/30 per cent upside to FY22 EBITDA for TATA/JSTL, free cash flow yield of 28 per cent/6 per cent and net debt falling 30 per cent/8 per cent in the year. Upsides are even higher if Indian steel prices converge with imports,” said Jefferies in a note earlier this week.
 

Shares of JSW Steel rose 9.25 per cent to end at a fresh all-time high of Rs 615. Jindal Steel and state-owned Steel Authority India (SAIL) rose over 6 per each.
 

Shares of Tata Steel rose 4.9 per cent to end at a new record high of Rs 918—surpassing its previous all-time high made in 2008. The company’s market cap also surpassed that of group firm Tata Motors.
 

“We believe metal stocks has more room to rally despite sharp outperformance vis-a-vis Sensex in FY21,” said domestic brokerage Centrum in a note.
 

“Demand uptick across economy post Covid-19 outbreak, reflected by manufacturing PMIs; China’s restriction in production owing to pollution, possibility of lowering export rebates on HRC from 13 per cent in order to discourage exports and meet in-house demand and China’s non-integrated producers’ gross margins marginally above last 10-year average only recently despite steel price hike due to high coking coal and iron ore prices,” are some of the positives listed by the brokerage.
 

Analysts say the strong interest in shares of steel stocks will help companies reduce debt which will act as a cushion if the cycle turns negative.
 

Interestingly, the BSE Metal index is still below its record high of almost 20,000 made in December 2007.