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There has been a rally in metals stocks, with JSW Steel hitting all-time-highs and Tata Steel at a 15-month high on Thursday. Though the Nifty Metals Index was down 1 per cent on Friday, the rally in the sector has translated into gains of about 20 per cent in the last six months.
The gains have been driven by a rise in global metal prices, driven by both supply disruptions and improving demand. Expectations of US rate cuts and a weaker dollar lend further support, while the European Union’s (EU’s) proposal to restrict steel imports is seen as favourable for Tata Steel. Cuts in goods and services tax (GST) rates might also be supportive, as demand from the domestic automobile segment is expected to rise.
Price trends diverged for ferrous and non-ferrous players during the July-September quarter of 2025-26 (Q2FY26). Seasonally weak steel prices may have led to margin declines of over ~2,500 per tonne for steel companies, but the drop in prices will be partly offset by lower coal costs. Guidance suggests a reduction of $5-10 per tonne in coking-coal costs for most companies. Steel volumes have grown due to domestic demand. India’s crude steel production in the first half (H1) of FY26 increased 12.4 per cent to 82.3 million tonnes and surpassed the 121 million-tonne mark in January-September 2025.
Long-steel product players like Jindal Steel and Power (JSPL) may have seen significant margin reduction to the tune of ₹4,000 per tonne in Q2FY26, while flat-steel product players like Tata Steel and JSW Steel are expected to have seen reductions of ₹1,500 per tonne. But working-capital requirements might also have declined, leading to chances of a net debt reduction.
Non-ferrous metals may have seen a strong quarter due to higher prices. Average prices for zinc, silver and aluminium have increased by over 7 per cent each, while alumina prices have declined a little, and copper prices have risen by around 6 per cent. Steel prices should pick up in Q3FY26, given better seasonality and import parity discount compared to domestic prices. There is some downside risk to aluminium if demand weakens in H2FY26.
In Europe, Tata Steel Europe might have seen a little margin improvement overall in Q2FY26, with better margins in the Netherlands offset by higher losses in the UK. NMDC may have seen a decline sequentially in operating profit per tonne, but prices trended substantially higher on a year-on-year (Y-o-Y) basis. NMDC had a price cut of ₹600 per tonne and a price hike of ₹400 per tonne in July and August, respectively. Chinese exports of steel have continued – up 10 per cent Y-o-Y at 77.5 million tonnes in January-August – but Indian companies have a buffer of 12 per cent safeguard duty.
Hindalco is likely to have seen strong double-digit gains on a sequential basis (and over 20 per cent Y-o-Y) in its India operating profit (standalone + Utkal), but Novelis’ operating profit is likely to have fallen on the continuing US tariff impact in Q2FY26. Hindalco’s Oswego plant suffered a fire and might face a production loss in Q3.
Nalco will have seen a small drop in alumina operating profit and strong improvement in aluminium operating profit. Hindustan Zinc’s operating profit may have risen considerably, driven by the silver bull run, as well as higher zinc prices. Vedanta might have seen double-digit rise in operating profit both Q-o-Q and Y-o-Y on higher zinc and aluminium prices and lower alumina costs.
In H2FY26, steel spreads may improve, given a $22 per tonne Q-o-Q rebound in China domestic hot-rolled coil (HRC) prices in Q2, tighter compliance of India safeguard duty, and the comfort of an import duty extension from 200 days to 3 years, besides seasonal consumption. Aluminium could see a margin expansion, given moderating alumina prices, and lower coal prices, despite the risk of declining prices.
In Q2FY26, consolidated sales volumes of steel majors might have risen by around 10 per cent Y-o-Y, (6.4 per cent Q-o-Q) to 21.6 million tonnes, with Tata Steel expected to report volumes at 7.84 million tonnes (up 4.3 per cent Y-o-Y and up 10 per cent Q-o-Q). Jindal Steel may, however, have seen a drop in volumes, with subdued long-steel prices and a long monsoon, which slowed down projects for capacity expansion. Average selling prices will be lower for most steel companies so they will be eagerly hoping for a rebound in prices in H2FY26. Jindal Stainless is expected to report a good performance on higher stainless-steel prices and stable nickel prices on the London Metal Exchange with Q2 volume expansion.
Most analysts are upgrading earnings projections for metals companies in H2FY26 based on the current commodity trends and expectations that the rally would continue.
