Metals & mining sector outlook: Steel companies to see near-term headwinds, says BofA; raises target for Vedanta

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₹450-500 per tonne increase in domestic iron ore prices has led to spot steel spreads contracting by $75-80 per tonne. Also Read: IndusInd Bank share price falls over 2% after Q3 results; Time to buy the stock? Here’s what analysts say It forecasts coking coal prices to average $270 per tonne, however it expects prices to decline materially only in H2CY24, thus, cost pressures are likely for the H1CY24.

“We acknowledge that domestic Hot Rolled Coil (HRC) could trade at a small premium versus landed cost of imports (vs long-term average of parity) with domestic demand likely to remain strong (we assume a 9% YoY consumption growth in FY25). However, a material premium is unlikely on reduced export optionality and threat of import substitution," said the report.

JSW Steel remains the BofA Securities’ only Buy in the sector as it believes the company is best positioned to benefit in a declining iron ore price environment. It maintained ‘Neutral’ stance on Tata Steel on balanced risk-reward, while retained its Underperform rating on SAIL amid premium valuations versus peers and given its inefficient coking coal usage, especially in a high coking coal cost environment.

In the non-ferrous sector, BofA Securities remains bullish on Aluminum on disciplined output from Chinese smelters, delays and rising risk of further closures of European smelters on negative spreads and firm Chinese demand despite property weakness. Analysts believe this is beneficial for Vedanta, while investors’ focus remains on progress of the announced demerger scheme, and timing and nature of refinancing and redemption of its parent company’s debt.