Goldman Sachs Sees 2014 as Good Year for Indian Steel Producers?

There seems to be a sudden flurry of activity around India’s steel business.

First came the decision of a marginal increase by some steel majors in the price of their steel products. Now, this market is turning even more bullish after it was reported that India could end up being a net exporter of steel in FY14 and FY15 as higher capacity additions and low demand forced many Indian steel majors to look at the overseas markets.

A slowdown in exports from China was expected to aid Indian exports, and has buoyed the punters even more.

Due to environmental concerns, many analysts expect China to cut steel capacity by 8 percent by FY17. China is estimated to have exported 52 million tons of steel in 2013, but this was expected to decline by 11 million tons by FY15, to the delight of Indian steel producers.

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Compare this to the despondency of 2012-13.

Some brokerage houses had even discontinued actively tracking industrial and cyclical stocks as demand weakened.

A report in the Business Standard stated that in the opinion of Credit Suisse, “the cyclical defensives price-to-book gap in India was the biggest in the region. While not all cyclicals were showing promise in equal measure, analysts were indeed betting big on steel stocks,” said this report.

One example of revived interest in the Indian steel story was that of Goldman Sachs. The investment bank re-initiated coverage of three steel stocks — Tata Steel, JSW Steel and Steel Authority of India — in December itself on the belief that India would benefit from the improved global steel outlook. Rising demand from Europe and China, according to Goldman Sachs, means an increase in global steel consumption by 4.7 percent to 1.5 billion tons in 2014.

Indian steel majors like JSW Steel, Essar Steel and Steel Authority of India, perhaps, saw this upswing coming, and aggressively increased their exports. Another steel leader, Tata Steel, though, chose to focus on the domestic market, say analysts.

Even though underlying demand in India remains weak, a weaker rupee compared to the dollar and some supply constraints may help domestic steel prices.

Coming Up: India’s pipe dream of 300 million tons per year of production explained.

FREE Download: The Monthly MMI® Report – covering the Steel/Iron Ore markets.

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