Margins of steel companies may witness pressure during July-September quarter – Zee Business decodes why?

Steel companies’ margins may come under pressure during the second quarter of the financial year 2022-23 (Q1FY23), Zee Business senior research analyst Arman Nahar said on Wednesday while explaining the factors that could impact the overall sector in the next quarter. 

Hot Rod Coil (HRC) steel prices are stable, however, the raw material prices such as iron ore and coking coal that are used to make the final product are high, the research analyst said. He added that NMDC lately has raised the prices of iron ore, similarly, coking coal prices have also surged around 34 per cent. 

Besides, several analysts also point out that the demand revival that has impacted due to multiple reasons be it covid or geopolitical tensions, has not picked up, Nahar pointed out. And, hence, the margins of domestic steel companies may see pressure during the September-end quarter of Fy23. 

China, which dominates more than 50 per cent steel market in the world, has seen pressure on demand due to issues related to real-estate and covid-led lockdowns, Nahar’s report said. 

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The market expert Ambareesh Baliga has a negative view on steel companies, The 18-month cycle has peaked out and for at least the next 3-4 quarters it will downgrade, he said, suggesting to book profit whenever a rally in steel stocks such as Tata Steel and others is visible. 

Motilal Oswal pointed out that inventory is high across the board and working capital has been locked due to high inventory and expensive coal payments.  

Both these are likely to come off over the next six months, the brokerage said, adding that the global macros remain challenging with a slowdown in China, inflation in the US, and Russia-Ukraine war keeping demand low in Europe.  

Shares of Tata Steel declined by nearly 1 per cent and were among the top losers on BSE and NSE to Rs 106 per share. Similarly, JSW Steel shares also closed flat with negative bias to Rs 650 per share levels on the exchanges.