Steel stocks red hot on merger talk

Steel stocks went up sharply on the Bombay Stock Exchange today on reports of Mittal Steel bidding for Arcelor. The BSE Metals index soared 4.96 per cent on hopes of better prices after the latest round of consolidation in the global steel market.

There was all round buying in steel scrips, including Steel Authority of India Ltd (SAIL) and Tata Steel.

The major gainers today were Lloyd Steel (up 17.29 per cent to Rs 11.6), MSP Steel (up 13.97 per cent to Rs 12.89), Sunflag Iron & Steel (up 9.94 per cent to Rs 14.38), Jindal Stainless (up 9.12 per cent to Rs 98.75), Uttam Galva Steel (up 9.08 per cent to Rs 38.45), Essar Steel (up 9 per cent to Rs 41.8), Tata Steel (up 8.86 per cent to Rs 395.65), SAIL (up 6.64 per cent to Rs 57.85) and Jindal Steel (up 6.52 per cent to Rs 1590.25). Most of these scrips have posted decent returns over the week.

Shares of SAIL, which had dropped about 2 percentage points on a disappointing third-quarter performance, firmed up soon after news of LN Mittal's move arrived in dealing rooms.

Analysts said global consolidation would help arrest the fall in steel prices. "If the Mittal group gains control of Arcelor, it will control substantial global capacity, which in turn will prevent a fall in prices. Steel prices are weak now because the industry is fragmented," said Manish Sonthalia, vice-president (equity strategy), Motilal Oswal Securities.

Other analysts said the growing demand for steel would keep prices firm with or without consolidation. BRICs PCG head (research) Amitabh Chakraborty said: "People talk about a slowdown in China. But it is growing at 9-9.5 per cent and India is catching up. Both countries are huge consumers of steel. With the continued thrust on roads and other infrastructure, demand for steel will grow."

He added that any weakness in steel prices had to be seen as temporary.

Industry experts pointed out that the recent softening of global steel prices was because of the spurt in Chinese production, which negated the large production cuts in Europe and America.