These metal stocks are among top picks by ICICI Securities

By Livemint
Chinese steel production cuts and a surprising improvement in steel demand helped reduce steel exports MoM in August (Bloomberg)

Chinese steel production cuts and a surprising improvement in steel demand helped reduce steel exports on a monthly basis in August, said a report by brokerage firm ICICI Securities. Steel fared better than Aluminium as Aluminium witnessed around 4.5% MoM increase in exports during the month.

Though, the demand lead indicators are still weak leaving the steel price resurrection story in H2CY21 dependent on the intensity of production cuts. Chinese steel profitability has declined further on the back of increasing coking coal prices, the report said.

Further, Chinese environment ministry has released the draft notice on FY22 heating season iron and steel production restrictions for consultations. Each day the correction in steel prices gets postponed, deleveraging adds to fair value for listed steel equities, as per the note.

"We are more constructive on aluminium and maintain Buy on Hindalco. JSPL being a potential debt free entity in FY22E post Jindal Power divestment is our top pick in the ferrous space. We have also initiated on Jindal Stainless with a Buy," ICICI Securities said in a note. The brokerage has a Buy recommendation on Hindalco, JSPL, Jindal Stainless and sell rating on state-owned steel producer SAIL. 

Domestic (India) retail prices have been under continous pressure in line with demand weakness; yet, unless steel prices fall by 30-40% from here, that too in a limited timeframe, we believe deleveraging will keep accruing higher fair value for the steel stocks, the note added. Stainless steel converter spreads (scrap to steel) looks lot more normalised and ICICI Securities prefers Jindal Stainless over ferrous pack.

The Nifty Metal Index has outperformed and surpassed all other sectoral indices, including IT, and logged the maximum gains in the last one year.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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