Favourable winds blowing for steel stocks

Recent developments in China seem favourable for the Indian steel sector.

- DEVANGSHU DATTA

Steel production cuts are planned in China and this should help balance demand-supply, thus reducing the chance of cheap Chinese exports.

Given the Directorate General of Trade Remedies (DGTR) recommendation of final safeguard duty for three years, the outlook for steel is turning favourable. The Q1FY26 results for the sector were mixed, or marginally positive, as construction was also hindered by unseasonal rains.

However, a pick up is expected in infrastructure activity in H2.

Steel companies delivered aggregate earnings before interest, taxes, depreciation and amortisation (Ebitda) of about ₹21,000 crore in Q1FY26, up 8 per cent quarter-on-quarter (Q-o-Q), exceeding expectations. The management's commentaries highlighted that Q2 was likely affected by seasonally-soft demand, but August saw steel price hikes. Coking coal prices are expected to ease by $5-10 per tonne, while iron ore prices remain stable. Along with volume ramp-ups, this may push up sector margins and revenues.

For the rest of FY26, consensus expects limited change in projections. One concern may be the seasonal impact of rains, which may limit coal production by Coal India.