The government’s focus on infrastructure development is increasing demand for steel and pushing its price higher and in turning telling on the price of sectoral stocks.
With India becoming the world’s third largest steel producer, the sector is set to grow at a faster pace in India. China, though largest producer of steel in the world, has higher dependence on international demand.
“Indian steel stocks have been climbing since last some trading sessions. To gain from the advantage Indian steel producing companies have, some foreign institutional players have been investing in steel stocks since some days,” said Pawan Borde, metal stocks analyst at Angel Broking.
“JSW saw the best rally since October lows,” said Borde, adding, “SAIL has also seen rally due to government initiative on infrastructure development.”
SAIL’s stock has risen by about 15 per cent in a month, while JSW has risen by 6 per cent. However, with surplus global capacity of steel, it is unlikely that Indian companies would be able to benefit much from a global trend, said Avinash Gupta, assistant vice-president, research, equity at Bonanza Portfolio Ltd.
One industry player, who asked not to be identified, said Chinese investors appear to be interested in Indian steel.
“It is immaterial who is buying stocks, but the fact that prices are going up means that somebody is buying. China has a lot of currency and could be wanting to deposit in good spots to hedge against fluctuation,” said Avinash Gupta.
Indian steel makers have more captive iron ore mines within and outside India than Chinese firms.
“While global demand for steel is expected to reduce by 14 to 15 per cent in the fiscal year 2010, the domestic demand is likely to grow by 6 to 7 per cent in the same period,” said Borde.