Date:14/09/2007 URL: http://www.thehindubusinessline.com/2007/09/14/stories/2007091453101600.htm

Back Positive steel story keeps metal indices moving

But steel stocks see red after three-day rally

Our Bureau

Mumbai, Sept. 13 The three-day rally of the steel stocks has been terminated as almost all major ones ended the day in red on Thursday. Although steel stocks ended negative, metal stocks refuse to give up and so does the positive metal story.

At the BSE, the integrated steel producer in the public sector, SAIL, has gained 0.44 per cent week-on-week whereas on a month-ago basis it has surged almost 15 per cent. Tata Steel has gained 2.03 per cent since a week. The stock has gone up by Rs 14.05 since September 6.

The strong showing by steel stocks during the past couple of days cast its influence on the metal index, with the BSE metal index moving up 8.32 per cent since a month ago by almost 916 points.

Domestic demand

According to analysts, there are industry fundamentals at work here. The steel price hike globally is one of the reasons leading domestic players to raise steel prices. Also, the fact that domestic demand is increasing at a faster pace than supply is adding its own momentum, they said.

Positive returns

The domestic steel majors have been showing positive returns on the back of improved profitability.

Coupled with the fact that there are expansion plans in the pipeline which can capture a significant chunk of the growing market for steel reinforces sentiment.

“There are a lot of infrastructure projects which are taking place and as the economy grows, there will be a lot of investment on those fronts. In all these developments, steel will be needed, thus boosting up their prospects,” said Ms Anita Gandhi, Head Of Institutional Business, Arihant Capital Markets.

Capacity sights

Tata Steel, which has successfully completed an overseas acquisition in Corus, is also looking to add capacity within the country.

Other steel majors too have similar plans.

The fact that they also have secure backward linkages in terms of access to iron ore and coal reserves lends stability to their earnings.

“Almost all major steel companies in India have captive mining, which adds to their strength,” said Mr Lalit Thakkar, Angel Broking Ltd.

“There is major consolidation happening and according to the valuations, the prices of these stocks are going to settle around these levels more or less,” said Mr Jimesh Sanghvi, Manager, Institutional Research, UTI Securities.