Metal and Mining share price target

HRC prices in traders’ market have crossed Rs60,000/te on average for the first time post Jun-22 as expectations of a price hike by major steel players in Mar-23 builds up. Spot spread was aided by coking coal price dropping US$40/te WoW. Rebar-HRC premium has contracted to Rs3,000/te- lowest in the last two months as HRC prices are aided by concerted price hikes across all regions.

After two successive weeks of decline, HRC prices in traders’ market rose by Rs500/te on stubbornly high coking coal prices and robust global prices. Spot spread, however, continues to languish at an eleven-month low level.

Q3FY23 was a revival quarter for smaller companies under our coverage with APL Apollo, Jindal Stainless and NALCO faring relatively better. Key highlights: 1) EBITDA/te for ferrous companies was up Rs3,000 on an average; 2) reduced cost of both thermal and coking coal aided margins; 3) net debt/EBITDA rose for almost all the companies; and 4) street raised the valuation multiples of all the companies.

HRC prices in traders’ market were down Rs830/te WoW (1.5%) as regional prices in South East Asia stay range bound and China’s demand growth continues to remain underwhelming post the Chinese New Year (CNY).

ArcelorMittal’s (MT) Q4CY22 performance was in line with street estimates. Key points: 1) Shipments were impacted by destocking in Europe and conditions in Ukraine; 2) realisation was lower across all geographies leading to lower profitability; 3) blended EBITDA/te at US$100 slid to a two-year low but was still at a higher level compared to the recent low points in the cycle.

HRC prices in traders’ market consolidated after seven successive weeks of hikes. However, rebars continue to fare better with rebar-HRC premium still at Rs2,800/te. Regional HRC price stayed unchanged; however, Indian HRC export price was up US$25/te at US$715/te on higher realisation by exporting to Europe.

HRC prices in traders’ market during the week ended 2 nd Feb’23 rose further by Rs1,800/te WoW to Rs60,400/te on average- the highest level since June-22 factoring end-Jan’23 and Feb’23 hikes by steel companies.

The focus of FY24 Union Budget on infrastructure, capex and green ecosystem comes as a positive for metals sector that is likely to spur domestic demand over medium term.

Alcoa’s Q4CY22 performance missed consensus estimates. Key highlights: 1)Higher raw material cost amidst lower realisation impinged EBITDA; 2) aluminium (Al) shipments rose 2% YoY at 641kte, following the restarting at Alumar (Brazil) and Portland (Australia) smelters; and 3) lower shipments of value-added products, sequentially lower LME prices and higher costs resulted in Al EBITDA/t declining 94% YoY (80% QoQ) to a mere US$48/te - lowest since Q2CY20.

HRC prices in the traders’ market during the week ended 19th Jan’23 rose by a further Rs1,000/te mirroring the mid-Jan’23 price hikes taken by major players.