Steel Stocks Outlook: Down next week on high inflation

[K.Karthik Raja]

Steel Stocks Outlook: Down next week on high inflation
Friday, Mar 28

NEW DELHI - Shares of steel companies are seen down next week, as
the inflation rate consistently climbs, sparking fears of higher
interest rates and more measures to control prices of goods.
At 6.68%, India's headline inflation rate for the week ended Mar
15 is at a 59-week high. The rise in inflation is on account of rise
in prices of manufactured products, mainly iron and steel. During the
week, prices of iron and steel rose 5.3%.
Perturbed by high inflation, the government has taken a series of
measures to curb prices of steel and other commodities, which it fears
are fuelling inflation.
In the last two days, export subsidy on steel has been withdrawn
and
import duty has been brought down to zero to enhance supply of the
material in the domestic market.
Much to the relief of steelmakers, the government has said it
would pursue iron ore producers to cut prices.
High global prices of iron ore and coking coal, fuelled mainly by
strong demand in emerging economies of China, India, Brazil, Russia
and West Asia, are often blamed for pushing steel prices higher.
"The situation is worsening fast. If inflation persists at these
levels
for a couple of months, we are headed for a slowdown," an industry
analyst said.
Spectre of slowing growth bodes ill for steel shares, as the
growth of the steel industry is directly linked to the economic growth
of the nation.
"A slowdown will result in lower industrial activity, falling
demand for
new houses and offices and automobiles. All this means lesser sales of
steel products," the analyst said.
This week, steel shares had a mixed response to the unfolding
scenario. While Jindal Steel and Power Ltd. and Tata Steel Ltd. posted
gains of 18.2% and 12.3%, respectively, JSW Steel Ltd. shares fell
over 9%. Steel Authority of India Ltd. shares had a roller coaster
ride, with a net fall of 0.3% during the week.
The outcome of government's talks with iron ore producers on
Tuesday will determine the direction of Sesa Goa and NMDC Ltd. shares.
Both shares are likely to dip if companies are asked to cut prices
of iron ore. Ironically, it's on Tuesday that long-term prices of iron
ore will go up 65% globally as per negotiations.
.
Week-on-week closing prices of key steel companies' shares, in
rupees, on National Stock Exchange:
.
Company Closing Level Closing Level % Change
Mar 28 Mar 19
.
Steel Authority 197.40 198.05 (-) 0.3%
Tata Steel 716.10 637.85 12.3%
JSW Steel 817.45 898.50 (-) 9.0%
Jindal Steel & Power 2228.90 1885.70 18.2%
.
Nifty 4942.00 4573.95 8.0%
Sensex 16371.29 14994.83 9.2%


K.Karthik Raja