Metal Thematic 4: Metal index at lifetime high, structural uptrend to get bolstered

Top Picks: Tata Steel and Vardhaman Special Steels

- The Nifty metal index logged a resolute breakout above the last five month's consolidation range (6312-5174) with a higher base formed in the vicinity of 100 days EMA, highlighting robust price structure. Going ahead, we expect Nifty Metal index to continue its relatively outperformance and head towards 6750 levels as it is the 138.2% external retracement of the recent breather (6312-5174)

- The Russia Ukraine conflict has provided traction to global steel prices, wherein a healthy rally has been witnessed in prices. During YTD CY22 (January 1-March 21, 2022), domestic HRC price have increased 16% YTDCY22 to Rs. 73500/tonne and domestic CRC prices increased 14% YTDCY22 to Rs. 79500/tonne. Going forward, supply fears on the back of current geopolitical scenario coupled with rising input costs is likely to support a further uptick in steel prices

- In CY21, Russia's crude steel output was at 76 million tonnes (MT) while Russian steel exports were at 30 MT. Similarly, in CY21, Ukrainian crude steel output was at 21 MT while Ukrainian steel exports were at 15 MT. Hence, during CY21, both Russia and Ukraine combined accounted for ~45 MT of global steel exports. Due to the current geopolitical scenario, as there are supply related fears from both these countries, Indian steel companies have an opportunity to step up their exports

Tata Steel

Technical View

- The stock recently generated a breakout above the falling channel containing six month's corrective decline and is currently seen sustaining above the same signalling resumption of the up move and offers a fresh entry opportunity

- The stock, in the smaller time frame, has generated a faster retracement of the last falling segment as nine session's decline (Rs. 1264-1067) was completely retraced in just three sessions signalling strength as buying demand is seen emerging from 52 week's EMA (currently placed at 1133 levels)

Fundamental View

- Tata Steel group is among the top global steel companies with an annual steel production capacity of ~34 million tonnes per annum (MTPA). India's share in Tata Steel's overall consolidated production capacity has risen from 29% in 2010 to 57% in 2020 and is likely to reach 73% by 2030

- Tata Steel's consolidated steelmaking capacity is ~34 million tonnes (MT) out of which ~20 MT is in India. In India, Indian operations' key assets viz. Jamshedpur, Kalinganagar, Dhenkanal have a globally cost competitive position, aiding overall consolidated EBITDA margins. In FY21, the higher margin domestic operations accounted for ~61% of overall sales volumes

Vardhman Special Steel

Technical View

- The share price of Vardhman Special Steel has formed a higher base above 52 week's EMA and is seen resuming its primary uptrend signalling strength and offers a fresh entry opportunity with favourable risk reward set up

- Key point to highlight is that the stock has witnessed a shallow retracement in the last eight months. It retraced just 50% of the preceding five month's up move (Rs. 134-309) signalling positive price structure and a strong higher base formation at the rising 52 weeks EMA currently at Rs. 226 levels

Fundamental View

- Vardhman Special Steel (VSSL) is among India's leading steel bar producers for automotive applications. It has specialised product offerings, which include steel bars and rods and bright bars of various categories of special and alloy steel

- VSSL has entered into strategic alliance with Aichi Steel corporation (ASC) Japan (main material maker for Toyota). Aichi Steel will share technical knowhow, which would aid VSSL to notably improve its product profile offerings, thereby improving its margin profile

For details, click on the link below:

Shares of Tata Steel Limited was last trading in BSE at Rs. 1350.20 as compared to the previous close of Rs. 1330.50. The total number of shares traded during the day was 417056 in over 15182 trades.

The stock hit an intraday high of Rs. 1359.25 and intraday low of 1325.75. The net turnover during the day was Rs. 562428543.00.

Shares of Vardhman Special Steels Limited was last trading in BSE at Rs. 248.55 as compared to the previous close of Rs. 256.65. The total number of shares traded during the day was 3618 in over 357 trades.

The stock hit an intraday high of Rs. 255.85 and intraday low of 247.65. The net turnover during the day was Rs. 911196.00.

Source : Equity Bulls

Keywords

TataSteel INE081A01012 VardhmanSpecialSteels INE050M01012 VSSL ICICIDirect Metal ThematicReport