Steel stocks plunge; Tata Steel, JSW Steel fall over 3% intraday. Here are the reasons
Upstox
2 min read • Updated: March 4, 2024, 2:36 PM
Summary
Shares of leading steel makers dropped more than 2% amid concerns over increased supply hitting the margins of steel companies. Higher exports from China have also weighed on steel prices and profitability.
Shares of leading steel manufacturers JSW Steel, Tata Steel and SAIL declined on Monday following concerns that increased production will likely to weigh on domestic prices and hurt their price spreads.
JSW Steel and Tata Steel were among the top five losers for the NIFTY50 index.
Shares of JSW Steel dropped by over 3% to ₹824.3 per share on the NSE in morning deals. The stock hit a low of ₹818.50 as more than 16 lakh shares traded on the exchange.
Global steel producer Tata Steel dropped by more than 1.5% to hit a low of ₹151.05 on the NSE. More than three crore shares changed hands on the NSE.
Public sector producer SAIL dropped to a low of ₹133 per share before recouping losses to trade moderately higher. Shyam Metalics and Energy declined 3% to a day low of ₹665.7 per share.
A healthy demand outlook and China’s stimulus expectation have kept the Indian steel sector in the limelight, with major steel makers, TATA Steel and JSW Steel, delivering positive returns to investors in the past five years.
Amid rising steel demand, steel companies undertook rapid expansion plans to boost their output volumes. However, this could also lead to a supply surplus and squeeze the spreads – the difference between raw material cost and final product cost – in the future compared to the past.
Experts believe spreads for steel manufacturers could remain below the 10-year average at $360 per tonne, while domestic prices may also remain below import parity. As a result, lower spreads are expected to hit the margins of leading steel players.
In the third quarter of FY 2023-24, Tata Steel reported a 3% drop in revenue due to the economic slowdown in China and geopolitics weighing on commodity prices. The company had stated that increased exports from China, which stood at around 7-8 million tonnes per month, were hitting global steel prices and profitability.
JSW Steel, on the other hand, had reported a 7% growth in revenue from operations driven by strong domestic demand in the December quarter.
Conclusion
Amid margin worries, listed steel stocks are expected to see higher volatility. Hence, investors should watch out for key industry and economic data before taking investment decisions.