Valuations reflect upside for listed steel majors despite weak Q2

India's steel sector gains from Chinese production cuts, resilient domestic demand and export momentum, though near-term margins face seasonal weakness and input cost pressure

There are some signs of optimism about India’s steel sector, despite recent moderation in steel prices and unseasonal weather affecting construction. China has started cutting steel production since April 2025 and it is likely to implement yet another stimulus package for its real estate sector. Both measures are positive for the global steel industry. The production cuts are also expected to continue, restricting the flood of cheap Chinese exports while the stimulus may result in better offtake within China.

 

In India, growth remains strong with steel consumption and production increasing. It is likely that prices have bottomed out or are very near to bottoming. Growth momentum could sustain into FY27 or FY28, due to infrastructure building, manufacturing growth, and resilient real estate demand. Between FY25-28, there could be an operating profit growth of over 20 per cent for many listed steel firms. 

In the first four months of FY26, crude steel production rose 9 per cent in India year-on-year (Y-o-Y) and consumption increased 8 per cent Y-o-Y. After the safeguard duty, net imports for April–July’25 declined to 0.37 million tonnes or MT from 0.99MT a year earlier. This drop has reduced import pressures and gives pricing support to local producers.

 

However, due to seasonal weakness, spot hot rolled coil or HRC trades at an 8 per cent discount to the China parity price, compared with a historical premium. Lower imports and firm demand should push up prices by 5 per cent above spot levels in H2FY26. The safeguard duty will run for three years.

 

In August ’25, domestic ferrous prices were stable with HRC flat month-on-month (M-o-M) at ₹49,700 per tonne (t) and rebar at ₹48,000/t, due to monsoon-led slowdown in construction. Crude steel production was flat M-o-M (up 11 per cent Y-o-Y) at 13.8 MT in August ’25, while finished steel production was 13.4 MT (flat M-o-M and up 11 per cent Y-o-Y). While imports dipped, exports rose 9 per cent M-o-M, 54 per cent Y-o-Y to 0.53 MT. India’s export HRC prices rose to $505/t (up $10/t) in August ’25, supported by global demand.

 

Ore supplier, NMDC implemented a hike of ₹400/t for lumps and fines in August ’25, on the back of price recovery. Premium hard coking coal prices were range-bound at $180-200/t. Average coking coal prices stood at $203/t (up 5 per cent M-o-M) in August ’25. Domestic coal production rose 12 per cent Y-o-Y to 70mt in August ’25 and domestic coal dispatches rose 9 per cent Y-o-Y to 77.4mt, with 8 per cent Y-o-Y increase in dispatches to the power sector, which consumed 62.4 MT in August ’25.

 

So long as domestic prices remain at a discount to import prices, imports could reduce, thereby improving the supply-demand balance and achieving inventory drawdowns. The market is hoping for post-monsoon recovery from September, led by revival in government capex and GST recalibration.

 

Indian steel companies may have had a soft Q2FY26 with lower realisations and weak volumes due to seasonal weakness. This may be partially offset by $5.5-10/t reductions in coking coal costs. NMDC had price cuts of ₹500/tn in July and a price hike of ₹400/t in August. Net-net however, Indian steel companies may see some operating profit/t contraction. Working capital requirements may have reduced as raw material prices trended down.

 

Analyst consensus is mildly positive on the domestic sector now. However, much of the upside may also be priced into share prices on a one-year perspective. Tata Steel is looking at substantial improvement in the Europe business, where operations are closer to breakeven, with a narrowing of losses in the UK and capacity ramp-up proceeding in the Netherlands. An operating profit loss of $76 per tonne in Q2FY25 for Europe turned into a positive operating profit of $8/t in Q1FY26.

 

Jindal Steel and Power (JSPL) may be of interest as a low leverage, high volume growth stock. It may benefit from capacity expansions coinciding with an uptick in the consumption cycle. JSW Steel is likely to see steady earnings expansion.