Steel Stocks Outlook for the week (02 - 06.07.2012)
rupeedesk
RUPEE DESK: Steel Stocks Outlook for the week (02 - 06.07.2012)
Stocks of major steel companies will track the key domestic indices and may extend this week's gains in the next week also. Positive development on both domestic and global fronts has boosted investor sentiment. Investors cheered the draft guidelines on the General Anti-Avoidance Rules detailed by the government late Thursday, and the rise in overseas indices, after European Union leaders agreed on relaxing some conditions to tackle the region's debt crisis. There was a general optimism over Prime Minister Manmohan Singh taking additional charge of the finance portfolio, the expectation of it that the reform process to pick up steam under him. Fundamentally, the steel sector is seen remaining under pressure due to subdued demand, surge in raw material cost, and weak trend in steel prices. Moreover, the sharp depreciation in the rupee has nullified the benefits derived from the fall in prices of coking coal in the past few months.
Monsoon is generally a slack period for steel manufacturers, as construction
activities slow down during the season. Long product restocking has already
been done, so no new demand is seen coming up from construction
sector. Global steel prices slipped further during the last fortnight on
the back of bleak demand and still higher output. The CIS Black Sea (freight on
board) export prices declined 3% further during the fortnight to
US$578/tn. Local steel prices have remained stable due to depreciation in
the rupee. Steel companies are likely to see flat growth in the first
quarter of the current financial year. However, though their Apr-Jun revenues
are seen down on quarter due to lower sales volumes, their operating
performances are likely to improve slightly due to correction in coking coal
prices. The local iron ore supply situation to slightly improve by end of July.
Nearly 4-5 iron ore mines are likely to resume operation by July end as most of
the mining companies have submitted their reclamation and rehabilitation report
to Central Empowered Committee. In April, Supreme Court had allowed
Karnataka mines to resume operation subject to compliance of certain
conditions, which included clearance of fresh reclamation and rehabilitation
plan by CEC. Technically also the stocks of steel companies are seen gaining
next week. Stocks of Tata Steel Ltd and Jindal Steel and Power Ltd are looking
stronger in the pack.
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