Metals & Mining: Flat steel to outperform long steel: Quarterly Preview

MUMBAI, 8 OCTOBER: Flat steel producers to outperform long steel producers in Q2FY27, supported by firmer HRC prices, which increased ~3% QoQ during the quarter, limiting the usual seasonal pressure on profitability. In contrast, primary rebar prices and semis corrected versus Q1FY27 average, which may weigh on the profitability of primary long steel producers. Stainless steel producers, meanwhile, are likely to report a recovery in profitability following the resolution of gas-related issues. In non-ferrous metals, following a ~9% QoQ decline in LME aluminium prices, we expect aluminium producers’ profitability to decline QoQ. Our top pick in the sector remains Tata Steel.

Flat steel benefits from firm pricing; coking coal, a headwind: Domestic hot-rolled coil (HRC) and cold-rolled coil (CRC) prices remained firm in Q2FY27, up ~21-22% YoY and ~3–4% QoQ, respectively, thus limiting the usual seasonal pressure on profitability. Demand remained resilient, supported by channel restocking ahead of expected price hikes, healthy demand from the pipe sector, improving construction activity following a patchy monsoon, and strong auto demand, particularly for galvanized products. In contrast, primary rebar and semis prices declined for the second quarter, falling ~3% QoQ and ~1% QoQ, respectively, which may weigh on the profitability of primary long steel producers. We expect steel companies’ EBITDA per tonne to fall in the range of INR 40-1,870 per tonne due to high coal cost and weakness in long prices. QoQ fall in EBITDA per tonne is the lowest in Tata Steel due to improvement in profitability in European operations. Jindal Stainless’ consolidated EBITDA may recover by 8% QoQ on the back of higher volumes as in Q1FY27, volumes were impacted by production disturbance on account of gas shortage.   

NMDC’s margins to fall on lower iron prices: We expect NMDC’s sales volumes to increase ~4% YoY but decline ~5% QoQ led by seasonality. However, realizations may fall 2% QoQ. Consequently, we expect EBITDA/tonne to decline ~9% QoQ.

Correction in aluminium price to weigh on margin of Aluminium producers: LME aluminium prices declined ~9% QoQ in Q2FY27, likely impacting Hindalco’s performance. Further, Novelis’ EBITDA/tonne may decline ~7% QoQ. Consequently, we expect consolidated EBITDA margin to contract by ~80bps QoQ. However, declining inventories could support a recovery in aluminium prices in the coming months.

Metal pipe companies to see mixed performance: APL Apollo Tubes may report an ~INR 80 QoQ improvement in EBITDA per tonne due to product mix improvement. Jindal SAW is likely to witness volume improvement, driven by a recovery in the domestic water segment demand in South India. However, margins are likely to remain under pressure given the increase in proportion of volumes to low margin water segment. Revenues of Ratnamani Metals and Tubes may rise 29% QoQ due to improvement in exports dispatches in the standalone business.- Author: Ravi Sodah, ELARA CAPITAL

(Disclaimer: The information provided here is investment advice only. Investing in the markets is subject to risks and please consult your advisor before investing)

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