Steel is Better Placed Among Other Metals, Says JP Morgan

The steel companies will continue to generate better cash flows.

SEATTLE (Scrap Monster): According to Pinakin Parekh, Executive Director-Oil & Gas, Metal Research, JP Morgan India noted that steel is better placed among other metals owing to higher spreads. The falling coking coal prices will continue to benefit Indian steel companies, he added.

According to Parekh, the Russian invasion of Ukraine led to huge surge in crude oil prices. Though the prices have cooled off from its previous peak, it continues to remain volatile. The war has also led to dramatic rise in commodity prices, including steel, which in turn has impacted businesses badly, he said in an interview to CNBC-TV18.

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The steel companies will continue to generate better cash flows. Among all commodities, steel still stands out in a relatively better way, as the next spread increase looks to be positive. The falling coking coal prices would benefit Indian steel mills in terms of low cost. Incidentally, the prices of coking coal have dropped from levels of $630 per tonne to around $400 per tonne.

The steel companies that are integrated with iron ore will report better margins. This is simply because elevated iron ore prices will lead to high steel prices, which eventually will result in higher spreads in the initial half of FY22, when compared with the second half. Also, first half of FY23 will partly reflect the high coking coal prices, Parekh said.

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