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Domestic steel companies are likely to see their margins increase by around Rs 1,500 per tonne on average in the first quarter of FY27, supported by higher flat steel prices, according to a report by Kotak Institutional Equities.
The report said the rise in margins is mainly due to higher prices of flat steel products during the quarter. However, the gains were partly offset by increased coking coal costs and seasonal weakness in rebar prices. The report expects steel realisations to rise by around Rs 4,000 per tonne on a sequential basis across the companies under its coverage, driven by price hikes over the past two quarters. At the same time, input costs are also expected to increase because of higher coking coal and iron ore prices. The report noted that metal prices remained strong during the first quarter. Hot-rolled coil (HRC) steel prices rose 8.8 per cent quarter-on-quarter, while aluminium and zinc prices increased by 11.5 per cent and 7 per cent, respectively. In contrast, silver prices declined by 11.2 per cent, while alumina prices remained largely unchanged. According to the report, the strength in metal prices is expected to support a strong quarterly performance for base metal producers. It added that the sector remains well placed due to tariff support for domestic steel producers and a global aluminium market deficit. "We see the sector as well placed with tariff support for steel players and a deficit in the global aluminium market," the report said. On recent fluctuations in non-ferrous metal prices, the report said the weakness was mainly due to broader macroeconomic factors such as expectations of higher interest rates and a stronger US dollar. However, it expects downside risks for aluminium prices to remain limited because of supply constraints. "We expect downside risks for aluminium to be limited, given the structural deficit," the report said. For the domestic steel sector, the report said tariff protection and a tight domestic market are expected to support healthy margins over the medium term. "In steel, tariff protection and a tight domestic market should ensure healthy margins for the steel industry over the medium term," the report added. (ANI)
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