While all steel manufacturers stand to gain from the hike in prices, analysts find JSW Steel and Tata Sponge to be trading at most attractive valuations.


Already facing the heat of increasing raw material prices, steel makers are reported to be considering a hike in steel prices between Rs 1,000-1,200 per tonne in January 2011. The move comes on the back of the rising coking coal and iron ore prices, the basic raw materials for steel, that have continued their northward journey throughout the current fiscal.

While first quarter coal contract prices at $200 a tonne were 56 per cent higher year-on-year (y-o-y), they have surged another 15 per cent by the third quarter-end to around $230 a tonne. Iron-ore prices too have been following the same trajectory and have moved up 80 per cent since the first quarter of the current fiscal to $135-140 a tonne during the third quarter.

The raw material prices are likely to further flare up on the back of rising international demand for iron-ore. China’s iron-ore imports have rebounded to 57.4 million tonne (up 12 per cent y-o-y) in November 2010, according to Motilal Oswal research. Iron-ore spot prices in China are also firm at $170 per million tonnes.

An increase in demand and rising international prices are also being seen as pressure points for the steelmakers by analysts. The hot-rolled coil prices have firmed up in domestic market with the buoyant demand and a supply crunch caused by shut-down in Ispat Industries. Analysts at Motilal Oswal observe that with buoyant end-user demand in India, steel producers will push for higher prices. Scrap prices too have surged globally in past few days (from $285 a tonne fcb Rottardam on 01 October to $399 a tonne on 13 December) with higher demand from South East Asia and European Union.

While all steel manufacturers stand to gain from the hike in prices, analysts feel JSW Steel and Tata Sponge to be trading at most attractive valuations. Tata Steel though fundamentally strong, may feel some heat on the operating margins front in Europe during third quarter, analysts say.