steel stocks outlook: India to become more of a steel exporter: Amit Dixit


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Previously, whenever Chinese steel consumption fell 9-10% in two consecutive months, it would have meant a bloodbath in prices, but currently prices are stable. I would say we are entering a new kind of structural change where prices would not go down to the level people are used to say Amit Dixit, AVP, Edelweiss Securities

What are the implications of China’s steel production restrictions on prices?
First of all, these production cuts, unlike those in the past, are more structural in nature because they fit very well with China’s desire to decarbonise. China is clearly moving in these directions and in the short term these production cuts will only intensify as winter arrives and we move into the first quarter of next calendar year when China hosts the Games. Winter Olympics and Winter Paralympics.

It is clear that these production cuts will continue and will have an impact on prices. We have seen in the past the Chinese authorities express their discomfort over the price level. Currently, demand in China is quite low. If you look at any PMI or one of the more fundamental indicators like new sells etc they are all down considerably, possibly the lowest level we’ve seen.

So it is clear that economic growth is quite slow and that these production cuts actually help them to balance supply and demand and therefore prices will remain fairly stable in the short run and this is what we are seeing. happen. Previously, whenever Chinese steel consumption fell 9-10% in two consecutive months, it would have meant a bloodbath in prices, but currently prices are stable. I would say that we are entering a new kind of structural change where prices would not go down to the level that people are used to.

Analysts call this an average reversion. The average itself will increase due to production cuts implemented in China. I see a roadmap of these production cuts for at least the next six months.

In terms of steel investment, do you see companies investing more as the demand for steel is greater than the supply?
In 15 years of covering the sector very closely, I have never seen five consecutive months of weak demand in India. Demand is therefore expected to increase. We cannot take these five months as a proxy to move forward. Coming to the capex part, this is a very interesting question because all the companies that have announced investments, have announced wasteland investments and therefore the intensity is lower. In addition, the capacity will be shipped faster than expected in a new capex. We haven’t seen a lot of greenfield investment announcements and rightly so, companies are very cautious there.

I see India becoming more of an exporter now. Before FY20, we exported around five million tons of steel every year and now we are producing over two million tons in the last four months. This is certainly related to the weak demand, but as the demand also increases in the country, the capacities also increase. As new abilities usually take a long time to come. I would see people take more interest in inorganic asset acquisitions. NIML, RIML and even the NMDC factory might seem interesting to some and these are the factories where production is not going at the optimal rate. So any major player can certainly increase production.

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