As far as the steel stocks are concerned I would draw your attention to Tata Steel. The industrial metals which are rallying are at the cusp of a long term rally. I am sure there will be profit taking bouts here and there but if you see what is happening to aluminium, steel, copper, zinc, nickel, lead etc ferrous and non-ferrous all metals are rallying. It is not surprising to see SAIL, Tata Steel or Bhushan Steel actually outperforming the market, the benchmark indices. As far as upsides are concerned, I would be very bullish on industrial metals especially steel companies’ because as I said it is a long-term bull market in play.
Demand recovery to push India steel prices up in 2010...
Indian steel prices are set to stay firm in 2010, after sliding nearly a fifth year-on-year, sparked by a global demand recovery, but the 2008 peak looks distant as imports gain momentum. Key raw materials iron ore and coking coal have also risen 65-70% from their 2009 lows, prompting price hikes globally while local players have said they will also hike rates by 5-7% in January as demand grows.
Currently, Indian steel is quoting at Rs 35,290 a tonne. Consumption in the world's second fastest growing major economy is set to rise over 12% compared with global usage of 9.2%. India this year extended fiscal stimulus packages to various sectors including infrastructure, real estate, auto and made credit easier to farmers to wriggle out of an economic slowdown.
While steel makers posted losses or poor profit growth in the first half of 2009 on inflating input costs, peaking interest rates and slumping demand, they turned to profit in the later half as government initiatives ensured a demand revival.
We can see an upward bias in 2010. Domestic demand is robust. Raw material prices are going up so prices internationally are also rising.
Imports vs demand
However, analysts do not expect prices to touch the 2008 peak as input costs then were 'abnormally' higher pushing rates up and with imports seen as a major threat. Imports in April-Nov have risen about 9% to nearly 5 million tonnes, government data showed.
"Most of this import is from CIS countries...threat is from there but demand for steel is very strong in India. As of now, producers are not carrying any stocks," a senior official at Joint Plant Committee, a government panel, said.
Besides, producers relying on exports will continue to suffer as they will be exposed to price competition, intensifying trade barriers and currency fluctuations, a Fitch Rating report said.
Local steelmakers are also worried buyers may turn to China, the world's top consumer and producer of the metal, which produces cheap steel and is aggressively raising output.
Chinese steel output has been growing at a rapid clip and is seen around 600 million tonnes by the end of this year, up from 500 million tonnes a year ago.
The latest data from the World Steel Association show that global crude steel output rose nearly a quarter year-on-year to 107.5 million tonnes in November. China's output surged 37.4 percent to 47.3 million tonnes.
"Indian prices are still at a premium to China but with higher input costs even Chinese will have to raise their rates, Pawan Burde, analyst at Pinc Research said. "Non-integrated players may suffer if (raw material) prices go beyond control."
Final Call: Buy Tata Steel 620 call option......expect 50-100% return in next 1-2 weeks!!!
-JK, Lead Associate, SLT
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