Nomura expects sequential profit improvement for Indian steel producers in Q1 FY27, despite weak rebar prices. Recent price hikes are expected to offset rising costs, while new UK import safeguards may benefit companies like Tata Steel. However, global demand concerns persist due to the slow recovery in China's property market.
What Happened
Nomura’s latest sector report indicates that Indian steel companies are poised for improved profitability in the first quarter of the 2027 fiscal year. This optimistic outlook comes despite recent domestic steel price trends, where rebar prices have fallen to their lowest levels of 2024, and hot-rolled coil prices have seen a slight decline. The brokerage has maintained a positive view on several leading Indian steel manufacturers, expecting them to navigate the current pricing volatility effectively.
Why Profit Margins May Improve
The brokerage anticipates a sequential rise in EBITDA per tonne—a key measure of profit per unit sold—for domestic steel firms. The core reason for this expected improvement is the series of price increases that companies implemented in the latter part of the previous fiscal year and early FY27. These price hikes are helping manufacturers offset higher production costs, which have been influenced by supply chain pressures stemming from the crisis in West Asia. By passing on some of these costs to customers, companies are working to protect their operating margins.
The Impact of UK Import Rules
A specific positive factor noted by Nomura is the UK’s decision to tighten its import safeguards for steel, effective from July 1, 2026. The new policy involves reducing tariff-free quotas and applying tariffs on imports that exceed these limits. This move is expected to support steel producers with a presence in the UK market by reducing competition from cheaper imports. For Tata Steel, which has significant operations in the UK, this regulatory change is seen as a supportive measure for its regional business.
The Challenges in the Steel Market
While the outlook for profitability is positive, the sector continues to face headwinds. The demand side of the industry remains under pressure, particularly due to the structural weakness in China’s property market. As one of the world's largest consumers of steel, the slow recovery in China’s construction sector continues to limit global demand prospects.
Regarding raw materials, the cost environment has shown some stability. Iron ore prices have eased slightly to approximately $92 per tonne, while coking coal prices have remained steady around $244 per tonne. These raw material trends are important factors that investors should keep in mind when assessing the actual earnings reported by these companies.
What Investors Should Track
The key monitorables for the steel sector in the coming months will be the actual demand recovery in export markets and the stability of raw material costs. Investors should track how the UK’s new import safeguards impact the actual volumes and margins of relevant steel producers in upcoming quarterly results. Furthermore, any significant changes in Chinese demand or global commodity price fluctuations will remain essential data points for evaluating the health of steel stocks.