Here is HSBC's Views on Indian Steel,
Regional steel demand continues to surprise on the upside fuelled by roaring growth across Asia. Notwithstanding recent concerns over China’s property sector,
we believe measures to rein in house prices will have limited impact on steel demand. We raise growth forecasts and bring forward our expectation of Asian steel demand reaching 1.0 billion tonnes (bt) to 2012 (previously 2013) from 803mt in 2009. Over coming years, we forecast Asia to remain tightly
balanced, shift into a net importer position and operate near full capacity. These conditions have historically corresponded with higher profit margins.
With spot Asian HRC steel prices now up 33% (USD175/t) y-td, we believe steel mills have more than recovered recent cost increases. Furthermore, upstream mining investment in recent years also provides a level of self-sufficiency in key raw materials. For 2010e and 2011e, we raise steel price forecasts by 12-20%, leading to average EPS upgrades of 14% in 2010e and 9% in 2011e, 10% and 12% ahead of consensus.
We believe the market is now pricing in an unlikely bearish scenario with implied ROEs below historical trend, and regional valuations (EV/t of USD852t) now below replacement cost (cUSD1,000/t). Our top sector pick POSCO is now included in HSBC’s Asia Super Ten portfolio. We are also attracted to Indian names which offer highest raw material self sufficiency (SAIL is our top pick in India).
