Steel shares decline on weak demand outlook; JSPL tanks 10%, SAIL falls 4%

In the past two months, JSPL's stock has plunged 56 per cent, as compared to 25 per cent decline in the Nifty 50 index

Shares of steel manufactures were under pressure on Wednesday and fell by up to 10 per cent on the National Stock Exchange (NSE) on concerns that the first quarter of the current financial year (Q1FY21) could be a record-low quarter in terms of sales and operating profit on the back of exceptionally weak demand.

Jindal Steel & Power (JSPL) shares were locked in 10 per cent lower circuit at Rs 74.30, its lowest level since January 10, 2017 on the NSE. In the past two months, the stock has plunged 56 per cent, as compared to 25 per cent decline in the Nifty 50 index. A combined 12 million shares have already changed hands on the counter and there were pending sell orders for 727,384 shares on the NSE and BSE.

Steel Authority of India (SAIL), JSW Steel, and Tata Steel were down in the range of 3 per cent to 4 per cent, against 2.2 per cent fall in the Nifty Metal index.

Despite getting exemption under the ESMA (Essential Services Maintenance Act), analysts expect all major steel plants to reduce operations significantly over the next 7-10 days. The rising cases of coronavirus across the globe would remain a key variable to monitor as it may impact the demand for globally traded commodities.

“If the government, after conducting significantly higher number of Covid-19 tests, comes to the conclusion that the severity of the outbreak is much more than what the current numbers indicate, we believe the nationwide lockdown might extend further, and as a result Q1 could be a washout for most of the companies,” analysts at Emkay Global Financial Services said in metal & mining sector update.

Last month, Moody's Investors Service had changed the outlook on JSW Steel’s ratings to stable from positive.

"The change in outlook to stable reflects JSW's weaker than expected operating performance, and our expectation that it will take longer for the company's credit metrics to improve to levels that warrant a higher rating," said Kaustubh Chaubal, a Moody's Vice President and Senior Credit Officer.

JSW Steel's stock hit an intra-day low of Rs 140 on the NSE. It was trading close to its 52-week low level of Rs 136 touched on March 23. It has slipped 41 per cent in the past month.