If prices stay the same, steel companies' margins could suffer in Q4; PL favours eight stocks, ranging from Tata to Jindal.

The prices of Indian steel companies are falling, which could negatively impact their profit margins by the end of FY24's fourth quarter. This is because the price of coking coal has increased by more than 20% over a period of time, while the price of steel has decreased by about 3%. According to Prabhudas Lilladher, steel companies must raise steel prices in order to prevent margin pressure. There are currently eight stocks in the brokerage's steel universe that it suggests purchasing or building up.
Despite the recent strengthening of global steel prices, Indian benchmark HRC prices (ex-Mumbai) stayed unchanged WoW at Rs 55,000/t, according to the most recent report by Prabhudas Lilladher. From Rs 20,715/t WoW, the domestic steel spot spread decreased to Rs 20,217/t. The price of Chinese HRC rose 2% WoW to USD 575/t.

The brokerage noted that domestic premiums have vanished over the past month on an import parity basis as Chinese prices have risen from USD 520/t while Indian prices have decreased 3% MoM. Spot spreads in China increased 7% week over week to USD 92/t. Additionally, spot spreads were unchanged at USD 147/t WoW while West European HRC prices rose to USD 630/t from USD 625/t WoW.

Iron ore fines (62% CNF Rizhao) prices stayed unchanged WoW at USD 133/t, while coking coal (FOB Australia) prices rose 2% WoW to USD 322/t. Consequently, the brokerage stated, "We believe steel companies under our coverage universe to witness margin compression in 4QFY24 unless they take price hikes; as coking coal prices have moved up sharp 21% QoQ while steel prices declined 3% over the same period." Additionally, it stated, "As festive season and state elections are getting over, we expect domestic demand to resume and companies would be able to take price hikes gradually in tandem with rising global steel prices."