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METALS: Domestic steel producers cut prices by 2-3%; Retain JSW as top bet
- Indian steel producers have announced steel price cut of 2-3% effective 1st November to align their prices with imports and domestic trade market. In Indian market, steel prices have been under some pressure in last 2-3 weeks due to currency gains of nearly 5%, while international prices have been on weak territory after showing some strength in the beginning of October when China forced production cuts to meet energy consumption targets. This price cut has come after 2 consecutive price hikes in September and October months.
- We maintain that average realization for steel producers should increase by Rs500-1,000/ton QoQ in 3QFY11 on back of price increases during last 2 months.
- We believe that steel prices will trend more sideways with some volatility due to seasonal factors. Demand and supply equation of coking coal remains critically balanced. Iron ore prices may weaken a bit in very near term but are expected to remain strong due to high level of consolidation among suppliers and dwindling exports from India due to increased environmental concerns.
- We prefer stocks like JSW Steel due to very strong organic growth. Tata Steel and SAIL will be driven by price movements in near term as organic growth in more than 12 months away.
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