Synopsis : Nomura remains positive on India's steel sector as China's coking coal supply gradually recovers. The brokerage maintains Buy ratings on Tata Steel, JSW Steel, Jindal Steel and Lloyds Metals, citing stable coal prices and improving margin visibility.
China's gradual recovery in coking coal production is easing concerns over raw material costs for Indian steelmakers, according to Nomura. The brokerage believes the latest developments reduce the risk of a sharp spike in imported coal prices and support margin expectations across the sector.
Following its latest review of global coal markets, Nomura has retained its Buy ratings on Tata Steel, JSW Steel, Jindal Steel and Lloyds Metals.
The brokerage noted that several coal mines in China's Shanxi province have resumed operations after safety-led shutdowns triggered by a fatal mining accident in late May. While the recovery remains uneven, seaborne coking coal prices have remained largely stable, providing relief to steel producers dependent on imported coal.
Tata Steel remains Nomura's top conviction idea
Among the stocks under coverage, Tata Steel continues to offer the highest upside potential according to Nomura.
The brokerage has maintained its Buy rating and target price of ₹240, implying an upside of approximately 22.4%.
Nomura highlighted that Tata Steel India remains highly sensitive to imported coking coal prices. However, the ongoing normalization of coal supply in China should help prevent a significant rise in global coal costs and support profitability.
The brokerage believes current developments are unlikely to create incremental pressure on Tata Steel's near-term margins.
Jindal Steel relatively insulated from coal volatility
Nomura also reiterated its Buy rating on Jindal Steel with a target price of ₹1,350, indicating an upside potential of 18.4%.
According to the brokerage, Jindal Steel's procurement strategy provides relatively better insulation against imported coking coal price fluctuations compared to some peers.
While global coal prices remain an important factor for the industry, Nomura believes Jindal Steel is better positioned to manage short-term volatility in raw material markets.
Lloyds Metals remains a preferred pick
Nomura maintained its Buy recommendation on Lloyds Metals & Energy and retained a target price of ₹2,050, implying an upside of around 16.1%.
Although the brokerage's report primarily focused on coal market developments, Lloyds Metals continues to feature among Nomura's preferred metal sector ideas due to its growth profile and operational outlook.
JSW Steel benefits from stable coal prices
Nomura has also retained its Buy rating on JSW Steel with a target price of ₹1,400, suggesting an upside potential of nearly 10%.
The brokerage pointed out that JSW Steel has the highest exposure to imported coking coal among its covered steel companies. As a result, any sharp increase in coal prices would have a larger impact on its production costs.
However, the stabilization in seaborne coking coal prices and improving supply conditions in China have reduced the likelihood of significant cost pressures in the near term.
Why China's coal market matters for Indian steelmakers
The recent developments stem from a mining accident in China's Shanxi province, one of the country's most important coking coal-producing regions.
Following the incident, authorities initiated extensive safety inspections, leading to temporary shutdowns at several mines.
According to data cited by Nomura, 77 of the 137 suspended mines had resumed operations by June 11. While inspections continue and some mines have reportedly halted operations again, the overall trend suggests a gradual recovery in supply.
China's domestic coking coal prices have risen more than 10% since the incident, reflecting concerns over raw material availability. However, international coal markets have remained relatively stable.
Australian coal exports help balance supply
Nomura noted that Australia has emerged as a key alternative supplier to China during the disruption.
Australian coking coal exports to China increased sharply in May, rising 114% month-on-month and 77% year-on-year.
Despite higher demand from China, Australian premium hard coking coal prices have increased only marginally, rising about 1.5% since the incident to approximately $244 per tonne.
This stability has helped limit cost pressures for steelmakers globally.
Stable coal prices support steel sector margins
Nomura estimates that every $10 per tonne increase in coking coal prices can reduce EBITDA by roughly $7-9 per tonne for integrated steel producers.
Given the current stability in seaborne coal prices, the brokerage believes near-term margin expectations for Indian steel companies remain intact.
While JSW Steel and Tata Steel are more exposed to imported coal costs, Jindal Steel's procurement mix provides partial protection against fluctuations.
Conclusion
Nomura believes the worst-case scenario from China's coal supply disruption has largely been avoided. As mining activity gradually resumes and seaborne coal prices remain stable, Indian steelmakers are likely to benefit from improved cost visibility and reduced margin pressure.
Among its preferred sector picks, Tata Steel offers the highest implied upside, followed by Jindal Steel, Lloyds Metals and JSW Steel. The brokerage remains constructive on the sector as raw material risks ease and profitability outlooks stabilize.
Disclaimer: The stock ratings, target prices and projections mentioned in this article are based on research published by Nomura and are intended solely for informational purposes. They should not be construed as investment advice or a recommendation to buy, sell or hold any security. Investors should conduct their own due diligence and consult a SEBI-registered financial advisor before making investment decisions.
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