Steel Sector Outlook Positive: JPMorgan Sees Surge in Demand Post-Elections and Monsoon

Steel stocks were in the spotlight on December 11, following a positive outlook from global brokerage JPMorgan. The brokerage highlighted that although overall volume growth for steel makers was modest in October and November, demand is expected to accelerate moving forward, as key events like elections and monsoons have passed. JPMorgan’s analysis indicates that India’s top private sector steelmakers, including JSW Steel, Tata Steel, and Jindal Steel, have seen a significant increase in coking coal and PCI coal imports. This surge in coal imports is expected to further boost production and demand in the coming months.

JPMorgan’s report noted that the volume growth of steel makers has improved by 25% year-on-year (YoY) for JSW Steel, Tata Steel, and Jindal Steel, with the three companies leading the market. However, state-owned SAIL has experienced a decline in its volume growth, down 5% YoY. Overall, the steel sector saw a 6% YoY increase in volume growth. On December 11, the Nifty Metal sectoral index rose by over 1%, with stocks like Vedanta and Hindustan Zinc climbing nearly 4%, while others like Hindalco and Tata Steel saw a 1% rise.

Despite the positive outlook, JPMorgan pointed out that finished steel production growth for the top seven steelmakers has been soft for the year-to-date, with only a 1% YoY increase. In November, demand was slightly impacted by the construction activity ban in NCR due to pollution concerns. However, with the monsoon season and elections behind, JPMorgan expects a significant acceleration in demand growth. The brokerage also emphasized that India’s coking coal stocks are slightly below the four-year average, which may drive increased buying in the coming months.

Looking ahead, JPMorgan sees positive catalysts for the steel industry, including increasing news flow around stimulus measures from China and potential safeguard duties on steel imports in India. Optimizing coking coal blends by steelmakers could also drive cost savings, enhancing the financial outlook for steel companies.

Overall, JPMorgan remains bullish on India’s steel sector, with an overweight stance on JSW Steel and Tata Steel, while maintaining a neutral view on SAIL. As the market conditions improve, these developments are expected to further fuel the growth of steel stocks.