JSPL and NMDC key gainers from higher domestic steel pellet prices

Disruptions in supply likely to help sustain prices in the near future

Domestic steel pellet prices recently hit their multi-year highs on strong demand from China and supply-related constraints. The continued shutdown at Brazilian pelletiser Samarco’s mines and force majeure by Swedish player LKAB is disrupting third-party supplies of 55-60 million tonnes per annum (MTPA), supporting steel pellet prices, say analysts. 

While data from Equirus Capital indicates that Indian pellet exports have touched $137 per tonne — an increase of 38 per cent over the June quarter — Edelweiss Securities has indicated that gains have been more than 29 per cent over the last month. The uptrend in prices is also reflected in recent contracts, at $150 a tonne.  

The rise in pellet prices is supporting long steel prices. While this benefits all steel players, pellet producers such as Jindal Steel and Power, and NMDC, are the main beneficiaries. Amongst others pellet producers/exporters, Godawari Power & Ispat, Jindal Saw, and Sarda Energy and Minerals have gained. Their stocks have risen 13-52 per cent since their July lows.

Analysts see further firming up of prices. Though the prices, after a sharp run-up, are expected to correct a bit, China’s stringent regulations (usage of high-grade iron ore, closure of sinter capacities) are more structural in nature, and demand for Indian pellets and high grade iron ore will sustain.

Among larger players, JSPL with a capacity of 9 MTPA pellet capacities for self and merchant sales will benefit on both counts. While integrated supplies bode well for profitability and its own steel production, merchant sales will see higher realisations, thus boosting earnings. In August, JSPL was the largest Indian exporter with 0.45 MT (up 5 times over the previous month), accounting for 42 per cent of total exports. NMDC, which is expanding its pellet capacities, will see more gains moving forward. Analysts had already been expecting additional Rs 1,500–2,000/tonne gains for the company, as its pellet plant stabilises by the third quarter. 

Recently Godavari Power & Ispat, too, has been concluding export deals to China and has received a credit rating upgrade from CARE. Not surprising, that the Street is expecting strong quarterly performance by Godavari Power and even other exporters like Sarda Energy and Minerals.