Nifty Metal gained 70% in 2021 to post the best year in over a decade. The likes of Tata Steel, Vedanta, JSW Steel have all gained nearly 70-80% in the last one year. Steel prices have cooled off from their October highs while coaking coal and iron ore prices have been on the rise.  

To talk about what lies ahead for the metal sector, ETNow spoke to Pinakin Parekh, ED -Metals & Mining, Oil & Gas, Cement, Equity Analyst at JPMorgan. He believes steel stocks are pricing in a very steep decline in steel prices and earnings which at the moment does not look likely. March and June quarters are very good for steel demand in China, the US,  Europe, and India. He also feels worst of Chinese demand decline is likely behind us.

Parekh firmly believes risk-reward is attractive for steel stocks at this point in time. If incremental demand improves which supports incremental change in prices visa-a-vis stocks which are pricing in a decline is what makes risk-reward for steel companies attractive. Parekh believes the trend from here will be improving and that steel demand and steel prices will be on the rise for the next few months.

On deleveraging plans of steel companies, Parekh says higher steel earnings are translating into very strong cash flow generation which allows companies to reduce their debt. Steel co’s debt at the moment is at the lowest level we have seen in decades. 

With respect to the global picture, across the board Indian steel and mining co’s have underperformed global peers. Chinese data points have stopped deteriorating on a sequential basis. Aluminum and steel are plays on China decarbonisation. For steel and aluminum, world ex China is in deficit or in balance.