Domestic steel companies are expected to see their margins increase by approximately Rs 1,500 per tonne on average in the first quarter of fiscal year 2027, driven by elevated flat steel product prices, according to a report by Kotak Institutional Equities.
Key Drivers and Offsetting Factors
The report attributes the margin expansion primarily to higher flat steel product prices during the quarter. However, the gains were partially offset by rising coking coal costs and seasonal weakness in rebar prices, which tempered the overall benefit.
Expected Realisation and Cost Trends
Kotak expects steel realisations to rise by around Rs 4,000 per tonne sequentially across the companies under its coverage, reflecting price hikes implemented over the past two quarters. At the same time, input costs are anticipated to increase due to higher coking coal and iron ore prices, which may limit the net margin improvement.
Metal Price Performance
The report noted that metal prices remained strong during the first quarter. Hot-rolled coil (HRC) prices rose 8.8 per cent quarter-on-quarter, while aluminium and zinc prices increased by 11.5 per cent and 7 per cent, respectively. In contrast, silver prices declined by 11.2 per cent, and alumina prices remained largely unchanged.
Sector Outlook and Tariff Support
According to the report, the strength in metal prices is expected to support a strong quarterly performance for base metal producers. It added that the sector remains well placed due to tariff support for domestic steel producers and a global aluminium market deficit. “We see the sector as well placed with tariff support for steel players and a deficit in the global aluminium market,” the report said.
Non-Ferrous Metals and Macro Factors
On recent fluctuations in non-ferrous metal prices, the report attributed the weakness to broader macroeconomic factors, including expectations of higher interest rates and a stronger US dollar. Despite this, it expects downside risks for aluminium prices to remain limited because of supply constraints. “We expect downside risks for aluminium to be limited, given the structural deficit,” the report said.
Medium-Term Margin Prospects
For the domestic steel sector, the report said tariff protection and a tight domestic market are expected to support healthy margins over the medium term. “In steel, tariff protection and a tight domestic market should ensure healthy margins for the steel industry over the medium term,” the report added.
