Steel: The New Precious Metal

May 09, 2017 | 07:13 PM IST

Steel is a black sheep of the stock market family. Unlike pharma, banking and IT stocks; steel rarely gets mentioned in the news and media. But like all the black sheep, steel has turned the table around and has made everyone take note of it. The turn of events of last few quarters coupled with government's policies has brought good days for the steel stocks. If the buzz is anything to go by, then it seems that steel stocks hold quite a promise for the investors in the near and long-term future.

But we don't go by buzz and hearsay, we believe in analysing stocks and sectors to the last detail. So let's get rolling and try to find out what are the things which are making steel shine so bright.

Steel At Glance

As we mentioned above, steel stocks have never been a hot favourite of the investors. The reason being, for last many years the metal stocks, especially steel, have not performed up to the expectations. Giants like Tata Steel and JSW Steel have consolidated for a considerably long period. These long, unproductive phases have frustrated investors at large. But you must have heard many times - patience is a virtue in the stock market. Hence, those who entered these stocks at lower levels and held them through the lean phase are in for the most rewarding period.

The culmination of GOI's steel policy and upbeat atmosphere in the related sectors like real estate and infrastructure have brightened the prospects of steel. However, the question here is - is this a short-term surge or is the sector genuinely bullish?

Steeling The Show

In the recent past, there have been two significant moves that have has a huge impact on the metal industry. First, the anti-dumping policy and second, the steel policy of GOI. Both these events have given a much need boost to the Indian steel manufacturers.

1) National Steel Policy

Recently, the government of India cleared national steel policy. This policy primarily dictates that domestic steel manufacturers would be given preference in the government projects. The policy aims to make India self-sufficient in steel manufacturing. Naturally, the policy has brought about a plethora of opportunities for the Indian producers who, till now were, competing with the mighty foreign players.

The government has an objective of producing 300 million tonne alloy by 2031. To accomplish this ambitious goal it is important for the government to empower domestic manufacturers and calibrate facilities that are conducive for all the producers.

Also, the government is trying to give steel prominence over other metals like iron ore. As the government policies are well aligned with the interest of the steel industry, it only smoothens its already smooth way.

2) Anti-Dumping Duties

The government of India is soon going to impose anti-dumping duties on select hot and cold rolled steel products from countries like Japan, Korea and China. The move is to safeguard the domestic manufacturers from the cheap imports. Certain hot-rolled flat products of alloy and non-alloy steel from China, Brazil, Korea, Russia, Japan and Indonesia have also come under the anti-dumping scanner.

Anti-dumping duty is a protectionist tariff that government imposes on foreign imports that the government believes is below the fair-market value. It will discourage the import of inferior goods creating a perfect void for the domestic players to step in.

3) The Steel-Infra-Cement Trio

In the recent past, some of the sectors which have reported maximum growth are infrastructure, cement and to some extent real estate. All these sectors are heavily dependent on steel. When sectors are interrelated, it creates a cascading effect, where if one gets going it gives a push to the other. The same build up can be seen in the Steel-Infra-Cement trio.

At present, there are a number of big infrastructure projects underway i.e. highways, flyovers, subways, stadiums, airports. Considering the volume and reach of these projects (Government owned projects spread across the country), it will be fair to expect an upward movement in the steel sector.

In this scenario who stands to gain? Indian steel manufacturers. And if they do better business it will reflect on their stocks, bring growth to the stock holders. It's a win-win situation for all.

Disclaimer - The stocks mentioned in the above article are only to illustrate the point in the context of the article. In no way, readers should look at these stocks as recommendations of Niveza. Stock recommendations are sent only to the registered customers via official channels i.e. SMS and Email.

 

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