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Informist, Friday, Aug 23, 2024

MUMBAI - Steel companies are expected to consolidate next week amid near-term pressure on margins due to muted demand in domestic market and China. At least domestic demand is expected to improve post monsoon, and lower coking coal prices have also helped maintain margins, which is likely to help limit any decline.

"Steel majors took price hikes, but with long product prices again declining sharply post June, Q2FY25 (Jul-Sep), pricing is expected to remain weak QoQ," brokerage Prabhudas Lilladher said in its strategy report today. Cheap imports from China have hurt the earnings of Indian companies till now but the brokerage expects China to soon cut production as "it is uneconomical to produce steel at these prices".

Apart from this, the recent ruling by the Supreme Court allowing state governments to levy taxes on mineral rights retrospectively had affected sentiment last week. Sentiment improved this week as clarity emerged that the impact will likely be limited to a few companies for now. Further, companies are required to pay these retrospective taxes in instalments over 12 years beginning Apr 1, 2026.

"Companies' ability to pass on higher costs to customers could also mitigate the effect on their profitability. However, the new taxes as well as denting cash flows, could prompt them to recalibrate their capital spending plans," Moody's ratings said in a report earlier this week. Moody's said the judgement is credit negative for Tata Steel, UltraTech Cement, JSW Steel, and Vedanta Resources as the payments can dent these companies' cash flows.

"We expect the completion of brownfield expansion projects and hence higher sales volume at Tata Steel and JSW Steel over the next two years to boost earnings, hence easing the impact of the new state taxes," Moody's said.

TOP HEADLINES
* S&P ups Tata Steel's credit rtg to 'BBB' from 'BBB-'; outlook stable
* Hind Zinc in pact with research body to develop zinc-based batteries
* PRESS:Tata Steel mulls tapping into nuclear energy to make green steel
* Hind Zinc to pay 19 rupees/share second interim dividend for FY25
* Fitch says state taxing mineral rights puts steel, mining cos at risk
* Promoter Vedanta to exercise oversubscription option in Hind Zinc OFS
* JSW Steel arm completes acquisition of economic interest in M Res NSW

Following are the resistance and support levels for the sector's key stocks for next week, as per calculations based on their prices on the National Stock Exchange:

End

Reported by Anshul Choudhary
Edited by Akul Nishant Akhoury

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