JSW Steel vs Tata Steel: Race continues for steel bellwether tag

Reports say that both JSW and Tata look to submit bids for Usha Martin's 1 MT steel unit.

By Nevin John  
Wednesday, August 29, 2018

Action continues unabated in steel industry. The Indian private steelmakers JSW Steel and Tata Steel, which are in rampant acquisitions to increase the capacities, look to submit bids for Usha Martin's 1 MT steel unit. JSW will replace pharma major Lupin in the Nifty 50 index from next month as its market value inches closer to Rs 1 lakh crore. The Chinese steel import to India fell in the first four months of this year when domestic demand picks up. The steel companies look to increase the steel prices by 5-8 per cent from next month.

Who will become the steel bellwether? Reports say that both JSW and Tata look to submit bids for Usha Martin's 1 MT steel unit. Tata recently acquired Bhushan Steel, which helped it increase its production capacity to 18.6 million tonne (MT). On the other side, JSW bought Monnet Ispat and emerged as the lead bidder for 3.5 MT Bhushan Power & Steel. With the addition of 1.5MT Monnet, the capacity of JSW increased to 19.5 MT. In addition, both are planning for Greenfield capacity expansions.

The resurgent steel manufacturers in the country are set to increase the steel prices by Rs 1500 a tonne from September. It will eventually help them realise better margins. The major reason for steel price increase is the depreciation of the Indian rupee, which made the import of the raw material coking coal expensive. The coal price has increased 14 per cent year-on-year, while rates of domestically sourced iron ore shot up by 11 per cent. The merchant miners in Odisha have started charging a premium of Rs 900 for a tonne of iron ore. The steel price is expected to move up by Rs 1,500 per tonne for both downstream products and hot-rolled coils. The increase is expected to be even steeper for long products.

In the first quarter, the domestic steelmakers posted better-than-expected earnings. The operating profits increased because of strong prices- hot-rolled coil (HRC) prices were up 14 per cent compared to previous year. Tata Steel reported a 61 per cent higher standalone Ebitda per tonne of over Rs 17,000 in the first quarter, while that of JSW doubled to nearly Rs 12,600.

Another good news for the Indian steelmakers is that China has cut its steel exports to India. In the first four months of this financial year, the country imported 3.03 million tonne (MT) of steel, up by 8.2 per cent, and half of it from Korea and Japan at zero or near-zero customs duty under Regional Comprehensive Economic Partnership (RCEP) agreement. China has exported 0.51MT to India, 22 per cent lower compared to last year same period. India has again turned into a net importer as exports of Indian companies at 2.47MT (in four months) are 19 per cent lower than imports. It indicates that the demand is growing faster in the country and it gives larger business opportunities for the Indian companies.

Japanese major Nippon Steel & Sumitomo Metal Corp, which bid for Essar Steel along with ArcelorMittal, said recently that it sees India as the "most promising market". Nippon's executive vice president Katsuhiro Miyamoto told Reuters, "India will be the fastest-growing steel market in the world going forward."

The market valuation of JSW Steel touched over Rs 96,000 crore and industry experts expect that it will cross Rs 1 lakh crore shortly if the market continues the present rally. The shares of JSW have risen more than 47 per cent so far this year and its strong performance helped it enter the benchmark Nifty50 index. The scrip will replace pharma stock Lupin from September 28, 2018. On Wednesday, JSW share price jumped nearly 11 per cent intraday to Rs 405.40 before closing at Rs 397.80. Tata Steel has a market valuation of over Rs 68,000 crore and its share rose by 0.5 per cent to Rs 593.35 on Wednesday. However, the analysts expect that Tata will also improve its valuation after completing the merger of its European division with Thyssenkrupp. It will create the continent's second largest steelmaker after ArcelorMittal.

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