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00:00Aditya Velikere, Metal Analyst at Axis Securities joining us for all of that perspective.
00:05Aditya, very good morning and great to speak with you today. So first of all, how much do you think
00:13this is going to impact steel company prices today or steel stock prices today as a sentiment?
00:19Would it be taken very seriously? Sentimentally, it's a positive step.
00:26But if you see at current spot prices, the Indian steel HRC prices are still trading
00:32at a premium of 8% at 7.5% customs duty. So if they increase the customs duty to 12%,
00:40then the premium drops down to 4%, but it is still not at parity with the Chinese prices.
00:46So they will have to raise the customs duty at least to 17-18% to get at parity with the
00:53Chinese steel prices. So even if they increase to 12%, Indian steel prices will still trade at
01:004% premium to the Chinese prices. So the real trigger will happen if there is some positive
01:07pickup in Chinese steel demand. We expect that as the autumn season picks up and the monsoon
01:14gets over, there might be some pickup in industrial machinery and construction activity,
01:19but it's still too early to say. We will have to continuously monitor because
01:24globally, including US and China, the PMI prints are in the confectory zone.
01:31But we are hopeful that there might be some relief as the autumn season picks up.
01:39So as I understand it, the actual global demand for steel and especially from China is a bigger
01:44concern than the import duties that we currently have on import of Chinese steel. Having said that,
01:50Aditya, just in the context of if import duties are indeed increased,
01:57which are the steel companies which would be most beneficial?
02:02It will benefit almost all the steel mills because ultimately it will put off the pressure
02:08on domestic steel mills as they compete directly with the Chinese HRC prices.
02:15But as I said, the quantum of the customs duty increase from the minister's comment of 10% to 12%,
02:23it should be higher. It should be at least up to 18% to get a parity with the Chinese prices.
02:29So that's point number one. But the root cause ultimately will be decided by the Chinese steel
02:34prices and the demand in China domestically. Because if that doesn't pick up and China
02:41continues to dump and export higher steel, in the first seven months of this calendar year,
02:47they have already exported 60 million tons of steel. And in calendar year 2024, there are
02:53expectations that these steel exports from China will touch 100 million tons, which will be the
02:58highest figure since 2016. So ultimately, there should be some pickup in activity from China,
03:06which we are looking as a positive trigger for this steel sector. If it doesn't play out and
03:13the demand from China continues to remain subdued, then the impact,
03:19the pressure on the domestic steel mills will persist.
03:23Aditya, just a couple of other factors that stand out.
03:27Indian companies have lower leverage than Chinese steel companies as per Moody's report.
03:33Raw material prices for steel companies have been reducing. We also understand that JSW
03:39Steel has hiked prices from 750 to 1000 rupees per ton. And we are concerned about Chinese dumping.
03:47Keeping all those factors in mind, where are Indian companies getting the confidence to
03:52hike prices because margins have improved? And secondly, also, while there's all this talk about
03:57double digit growth, in your pecking order, which are the top three companies that could benefit on
04:03back of lower leverage and better margins and price hikes? So as far as steel stocks are concerned,
04:09we are still slightly positive on non-integrated players like JSPL and JSW Steel. We are slightly
04:17negative on Tata Steel and SAIL. Tata Steel has multiple issues with respect to their UK
04:23asset restructuring. They have a long road ahead in order to restructure the UK assets.
04:29SAIL is structurally cost-sensitive and price-sensitive company. So we are slightly
04:36negative on SAIL. Also, its history with respect to its capex management and modernization program
04:46is not very good. And they have exceeded their previous expectations of capex in order to
04:54increase their steel production. So we think the drop in the raw material prices like coking coal
05:02and iron ore, that will be slightly beneficial for the non-integrated steel players. The drop
05:07in HRC prices definitely gets some partially offset by this drop in coking coal and iron ore prices.
05:14But still, in the second quarter of this fiscal, we expect that the steel spot spreads will be
05:21slightly under pressure on a quarter-on-quarter basis, maybe 1% or 3%. On a year-on-year basis,
05:27a rough calculation says that the steel spot spreads will be in the range of $350 to $360
05:34per tonne from the last year's $450 to $460 per tonne. So that is the quantum of impact because
05:39of the falling HRC prices. Thank you, Aditya. Great chatting with you this morning and thank
05:44you for sharing with us your top recommendations and steel stocks that you actually like in the
05:49space.