On the back of the positive commentary that has come in from China, do you expect any kind of an uptick in prices because we were expecting some positive boost to come in when it comes to the real estate space and the manufacturing sector, but nothing meaningful had come in from China. Post this announcement, are you expecting an uptick in the metal prices?
Kunal Kothari: Yes, of course, on the international front, we have already seen a good uptick in the steel prices. So, on a month-on-month basis, it has already gone up 15% from the bottom, that we saw last month. Similarly, a positive trend is continuing in India as well. In the last two weeks, we have seen a good turnaround in the trend and prices have actually moved up by around Rs 1000 to Rs 1500 per tonne. So, the stimulus which has been announced in China is actually flowing very positively for the metal sector.Price increase has happened in China as well as in India. What is the differential here? Is Chinese steel still at a discount to Indian prices?
Kunal Kothari: No, it is not right now. The landed cost from China was around 5% to 10% discount to the Indian prices. But recently we have seen the international prices move by around 15%. Now we are at a discount to the landed cost of China. Henceforth, the problem in the entire sector was the excess export from the China front. But with this, we believe the trend should reverse on the export front, ) on the overall imports happening in India. So, from the highs of around 0.6 million tonne, it should decline going forward in the foreseeable future.
What is the price differential here and what is the margin or headroom that Indian steel producers have to increase prices here?
Kunal Kothari: Comparatively, Indian prices are nearly Rs 2,000 lower compared to the landed cost of imports. So, gradually, in India as well, we will see an uptick in the overall demand post monsoon season as construction activities pick up. So, gradually Indian steel players will also increase the steel prices which will be favourable in the overall results for the next two quarters.
But overall, there is this expectation that the government can come up with some sort of restrictions to curb imports of steel in the country. Given the kind of price differential you are talking about and how it is likely to narrow a bit, do you see the need for these curbs to come in? If yes, which are the companies that stand to benefit the most?
Kunal Kothari: Earlier it was a need as the export was on a higher end, on a year-on-year it is still at 50% percent higher. But as a trend is reversing right now, I do not see there will be a further requirement. So, steel as a sector is cyclical in nature, whenever there is a lower demand in China, it tends to increase the exports. But with the stimulus support that the government is providing, we are expecting the demand should revive in China as well, and that will limit the exports from China and hence we are seeing it is reflecting in the steel prices as well. So, I do not think there will be additional measures apart from those already there. India has import duty and the minimum import price of around $480-$490 per tonne. That is feasible right now.
If you had to make a pecking order in terms of your stock recommendations within the ferrous, non-ferrous space, what is your pecking order and what is the top bet?
Kunal Kothari: We like JSPL from the ferrous front and from the non-ferrous, our top pick is Vedanta Limited.