2 Steel Stocks That Could Benefit as Domestic Steel Prices Hit 4-Year High
Steel is one of those sectors where the story keeps changing every few quarters. First it was about demand coming back, then imports, then China. Right now the mood is different, prices are holding firm even in a season that's usually weak, and the mills are dealing with their own rising bills. Let's look at what's going on and why some players may handle it better than others.
Steel Cycle Is Changing Gears
Motilal Oswal Financial Services put out a report, and the main message is simple. The domestic steel cycle is moving from a volume-led recovery to earnings growth driven by prices and costs. Prices stayed firm through the ongoing second quarter of FY27 (July to September) despite the usual seasonal weakness.
Hot-rolled coil, or HRC, is the flat steel used in pipes, vehicles and machinery. It rose 7% in a month to Rs 62,000 per tonne in September, a four-year high. Cold-rolled coil (CRC), which is HRC processed further for a smoother finish, gained 8% to Rs 70,500 per tonne. Rebar, the ribbed bars used in construction, recovered from Rs 48,850 per tonne in June to Rs 56,800 in September. That's roughly 16% in three months. Since both flat and long products are moving up, the brokerage calls the strength broad-based.
Why Prices Are Moving Up
Three things are helping. Channel inventories are lean, which just means dealers and distributors aren't holding much stock, so any fresh buying pushes prices up fast. Some maintenance-related shutdowns are also cutting supply for now. And input costs like coking coal, iron ore and pellets are all higher, which mills are passing on to buyers. The brokerage says most of the price gain comes from this cost pass-through.
Coking coal is a good example. Premium Australian coking coal went from $260 a tonne in June to $300, and for every $10 rise, steel costs go up by about $7-8 per tonne.
Demand Running Ahead Of Supply
India's finished steel output between April and August was 67.4 million tonnes, up 3.7% from last year. Consumption grew faster at 7.2% to 70.3 million tonnes, so the country used nearly 2.9 million tonnes more than it made. That gap keeps the market tight. The world isn't adding much steel either. Global crude steel output fell 0.6% to around 1.08 billion tonnes in January-July, and China, the biggest producer, saw output drop 3.1% to about 577 million tonnes.
Where Costs Could Bite
Here's the catch, and honestly it's the part most people skip. Cost inflation doesn't hit all at once, it builds up over the coming quarters. The brokerage says near-term earnings look supported by better realisations, meaning the average price a mill actually gets per tonne. But margins later will depend on whether mills can keep passing on further hikes. A price rally only helps if it stays ahead of the cost rally.
The Two Picks
Motilal Oswal named JSW Steel and Tata Steel as its top picks. The logic is that companies with strong cost positions, captive raw materials and more value-added products should defend margins better. Captive raw material means the company has its own supply of things like iron ore or coal, so it isn't fully at the mercy of market prices. Value-added products are steel sold after extra processing, like coated or cold-rolled sheets, which usually earn better margins than plain commodity steel.
Bottom Line
Prices are up, inventories are thin and China isn't adding supply, so the near-term picture looks decent for mills. The tricky bit is cost inflation, which will show up slowly and could eat into margins if price hikes stop. That's why the brokerage leans towards companies with own raw material and a better product mix. This is one brokerage's view, and steel is a cyclical business, so prices can turn. Do your own homework before acting on it.