Renewed buying took steel stocks higher on Tuesday as the sector in general has a positive view considering the many recent hikes in prices.
For instance, private sector steel major Tisco (up 2.3% to Rs 156.90) and public sector steel major Sail (up 4.4% to Rs 10.65), both gained. Penny steel stocks like Jindal Vijaynagar Steel (up 4% to Rs 5.15), Essar Steel (up 2.9% to Rs 8.80) and Ispat Industries (up 2.9% to Rs 5.30), registered significant gains as well.
Volumes, in just one-and-a-half hours of trading was unusually high - Tisco at 615,000 shares, Sail at 1.24 million shares and JVSL at 350,000 shares. FIIs are believed to be buying in Tisco.
There's been much oscillation in steel scrips of late, after they staged a smart rally from their October 2002 lows. But overall, gains have been seen. The market cap of 9 large steel companies jumped by Rs 54.88 crore or 0.45% to Rs 12,111 crore (Rs 121.11 billion) on 17 Febaruary 2003 from Rs 12,056 crore (Rs 120.56 billion) on 17 January 2003.
Steel shares have been propelled higher by a firm trend in steel prices, in turn, boosted by firm international steel prices. There are expectations that international steel prices may move up further due to strong demand from the Chinese market.
While Chinese consumption continues to be robust at global levels, sustained growth in automobile and construction is being witnessed at domestic levels. Based on global trends, the improved realisations are likely to continue well into the current and next quarter.
Most steel companies came out with buoyant Q3 ended 31 December 2002 results. The aggregate sales of 50 steel companies were higher by 33% to Rs 11521 crore (Rs 115.21 billion) in the quarter ended 31 December 2002 over the corresponding previous quarter. Margins virtually zoomed up by 790 basis points to 16.7%, resulting in 154% jump in operating profits to Rs 1,926 crore (Rs 19.26 billion).
The industry is likely to sustain the improved performance in the current quarter. Already, Sail has hiked prices twice since the start of 2003. The apparent consumption of finished steel increased by about 6% in the nine months ended 31 December 2002 over the corresponding previous year. Further, the robust growth in demand for steel in China helped to retain the momentum in steel prices at the global level. While the automobile and construction industry showed strong demand, the capital goods industry is also showing signs of recovery. A sustained rise in steel prices, coupled with strong domestic growth and increased exports will enable improved performance of the industry during the current quarter.
Meanwhile, financial institutions have approved a restructuring package for some steel majors like Essar Steel, Ispat Industries and Jindal Vijaynagar Steel. The package envisages reduction in interest rates, funding of compound interest, waiver of liquidated damages and extension of loan period in line with estimated revenues. This package is expected to put the steel industry on a stronger wicket to face the future with confidence.
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