Nifty Metal index surges 3%; JSW Steel, Jindal Steel up 6%

Shares of metal companies were in focus on Tuesday, with Nifty Metal index surging 3 per cent on the National Stock Exchange (NSE) on the expectation of demand recovery.

Jindal Steel and Power (JSPL) and JSW Steel were up 6 per cent each at Rs 217 and Rs 285, respectively on the NSE. Hindalco, Tata Steel, Steel Authority of India (SAIL), and National Aluminium Company were up 3 per cent to 5 per cent.

At 03:04 pm, the Nifty Metal index, the top gainer among sectoral indices, was up 3 per cent at 2,490 points, as compared to a 0.55 per cent rise in the benchmark Nifty 50 index.

Base metals prices rallied for the second consecutive week as lower supply concerns, demand growth optimism, and dollar weakness boosted prices for the week.

Nickel prices at LME rose to a nine-month high on demand from China and fear of lower supply of nickel ore from the Southeast Asia region over lower shipments. Copper prices rose to the two-year high at LME with prices closing above the resistance levels of $6645.

“Copper prices may continue to trade higher in the medium term on expectations of lower supplies estimates from the world's top miners and demand recovery expectations from US and China over positive economic data,” said Tapan Patel- Senior Analyst (Commodities), at HDFC Securities.

The steel prices have improved since July 2020 and analysts at IDBI Capital expect these prices to sustain and rise further in FY22E. A better realisation and improved demand are likely to result in higher margins for large steel companies in FY22E.

“Most of the companies have announced capex cuts and plans to prune operating costs. Large steel companies are better placed in the current weak cycle, compared to the previous weak cycle (2015-16) as their balance sheets are relatively stronger. We expect large steel companies to gain market share from the small and non-integrated players who are likely to struggle due to high debt, weak steel cycle, labour shortage, etc,” the brokerage firm said in steel sector update.

Meanwhile, the rating agency CRISIL has removed its rating watch with negative implications on the bank facilities and non-convertible debentures of JSPL and assigned a "Stable" outlook.

“The rating watch has been resolved on account of improvement in the company's liquidity profile and completion of the restructuring of loan repayments at its subsidiary companies, Jindal Steel and Power (Mauritius) Ltd (JSPML, holding company of the group's overseas investments with an outstanding debt of $673.2 million as on July 31, 2020) and Jindal Steel and Power (Australia) Ltd (JSPAL, a wholly-owned subsidiary of JSPL),” CRISIL said in a rating rationale.

While domestic demand for steel is yet to normalise, CRISIL expects the company to sustain its healthy performance through fiscal 2021, given its raw material advantage and improving utilisation rates. This, along with low capital expenditure (capex), will lead to continued healthy, free, operating cash flows resulting in further deleveraging.