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MOSL: STEEL-Upgrading earnings on improving long product prices; Expect bumper 4QFY18; JSP and NMDC are our top picks

Steel: Upgrading earnings on improving long product prices; Expect bumper 4QFY18; JSP and NMDC are our top picks

•  Steel sector outlook has turned positive, with growth in industrial production across the world and supply-side discipline, despite slowing fixed asset investment. Steel mills’ spreads are at new highs.
• Indian long product prices have spiked in the last few months, bridging the gap with flat products, driven by improvement in domestic demand and tightening of iron ore supply. JSP, SAIL and NMDC are the biggest beneficiaries.
• Margins of Indian steel mills are on the uptick. We expect Indian steel mills to report very strong numbers in 4QFY18. We are raising our EBITDA estimates by 10-15% for FY19 and rolling over our target price to FY20E earnings. JSP and NMDC are our top picks. We continue to like JSW Steel.

 Steel market outlook across the world has turned positive, with industrial production growing in most of the developed (Exhibit 4, Exhibit 5, Exhibit 6) and BRIC countries (Exhibit 7). Although China’s fixed asset investment (Exhibit 9) and industrial production growth continue to decelerate, its trade (Exhibit 10) with the rest of the world (RoW) is growing, benefiting from industrial growth in RoW. China’s steel exports (Exhibit 8) have been declining all through CY17 on supply-side discipline, which has tightened steel markets across RoW and boosted steel prices.