Strong results of JSW Steel supported by sharp rise in steel prices

The Annual Report of JSW Steel is out. The strong results of JSW are supported by a sharp rise in steel prices in Q3FY21 leading to relatively elevated levels of steel spreads. However, no one is aware of how those elevated spread levels to be sustainable.

Indian iron ore prices are rising and so are those for coking coal which could add to gross margin pressure: Iron ore availability from Odisha has been impacted due to logistical issues and the failure of new mining lease owners to ramp up.

This has led to supply of iron ore facing bottlenecks at a time of rising demand, with prices rising significantly over the past two months. Further, China is procuring coking coal at a premium to Australian price as it restricted imports from Australia.

However, the management of the firm expects domestic steel prices to be range-bound, with long product prices witnessing some moderation. The steel industry had witnessed de-stocking earlier as production was curtailed during lockdowns. However, demand rebounded sharply leading to supply gaps and rises in prices locally. With output and inventory levels normalising, we should witness moderation in global and local steel prices.

JSW Group, formerly known as Jindal South West (JSW), is an Indian business conglomerate diversified in steel, mining, energy, infrastructure and software business. It was founded by Sajjan Jindal in 1982.