Brokerage firm Nuvama Institutional Equities has set its sights on a robust forecast for the Indian steel market, predicting an additional output of 14 to 15 million tons (mt) of flat steel by the fiscal years FY26 and FY27. This projection aligns with expectations of a surplus in Hot Rolled Coil (HRC) during FY26, driven by the ramp-up of operations at major steel manufacturing plants.

Rising Production Capacity

Notable players in the steel industry, including Tata Steel, JSW Steel, and Jindal Steel & Power, have recently commenced operations at their HRC facilities. Together, these plants boast a combined capacity nearing 17 million tons per annum (mtpa). Additionally, production enhancements from Arcelor Mittal and NMDC Steel are further contributing to this surge.

• Key manufacturers involved:
  • Tata Steel
  • JSW Steel
  • Jindal Steel & Power
  • Arcelor Mittal
  • NMDC Steel

Export Opportunities Ahead

With domestic production on the rise, the Indian market may need to tap into export avenues to handle the surplus. According to Nuvama, this will hinge significantly on China’s export policies. If China curtails its production or experiences increased domestic demand, it could pave the way for Indian steel exports to flourish.

The introduction of safeguard duties is expected to restrict imports, which will enable local producers to boost their capacity utilization. However, with the domestic supply set to increase, significant price hikes in steel are unlikely. Nuvama emphasizes that a rebound in global economic activity, alongside sustained strong domestic demand and higher export levels, will be vital for maintaining elevated steel prices throughout the upcoming year.

Revised Earnings Forecasts

In light of these developments, Nuvama is revising its earnings estimates for steel companies upward by 8 to 14%. This adjustment includes a projected increase in average hot-rolled coil prices by about ₹2,000 per ton for FY26 and FY27 across all steel firms.

• Earnings revisions:
  • 12-14% increase for Steel Authority of India Ltd (SAIL) and JSW Steel
  • 7-8% increase for Jindal Steel & Power (JSPL)

Consequently, target prices are being adjusted upward as follows:

• 22% increase for SAIL
• 19% increase for JSW Steel
• 13% increase for Tata Steel
• 9% increase for JSPL

Nuvama maintains a ‘BUY’ rating for JSPL and SAIL, while holding a ‘HOLD’ rating on Tata Steel and a ‘REDUCE’ rating on JSW Steel, due to concerns over high valuations.

Conclusion

As the steel industry anticipates significant changes, including increased domestic production and potential export opportunities, stakeholders should remain vigilant. The upcoming fiscal years will be pivotal, and the interplay between supply and demand will ultimately shape the market landscape. Understanding these dynamics will be essential for investors looking to navigate the evolving steel sector effectively.