Steel stocks expected to move within a range - Integrated

Stocks of major steel companies are expected to move within a range with a negative bias on worries that the weakening trend in the rupee may hurt their margins in the quarter ended June. Though global coking coal prices have dropped 20%, domestic primary steel producers will not be able to reap the benefit due to the rupee's depreciation against the greenback. This is expected to hurt companies' margins. The Indian steel industry relies on imports to meet its coking coal demand. Coking coal and iron ore are the two key raw materials used by domestic steel companies in steel making. Continued subdued demand for the alloy in the domestic market is expected to keep performance of most steel companies muted through the week.

Though steel demand in the country is more than it is globally, the strength in demand is not up to the mark. Stocks of Jindal Steel & Power are seen slightly weak following the show cause notice from the coal ministry. The ministry has zeroed in on 30 coal blocks where delay in commencing operations has been identified and has sent notices to the allottee accordingly. We are also of the view that a significant fall in stock prices of the steel companies in the week ended Friday could lead to bouts of short covering early next week, which however, will not last due to weak fundamentals.

Source : Equity Bulls

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