07 May , 2022 By : Kanchan Joshi
After a prolonged period of covid-19 related lockdowns, China is moving towards restarting the industrial activity, especially construction. In brokerage house Edelweiss' view, this is likely to brighten demand prospects.
Accordingly, the brokerage remains positive on the ferrous space with JSPL (target price: Rs637) and Tata Steel (target price: Rs1,755) as its top stock picks in the metals space, mainly due to their relatively less dependence on imported coking coal.
“In view of declining domestic and export realisation and firm coking coal prices, we see lower spreads as a concern in H1FY23. At its earnings call, Tata Steel management indicated that domestic margin in Q1FY23 is likely to be better than Q4FY22 as realisation uptick is likely to offset the coking coal cost," the note stated.
However, in view of the declining spot spreads, Edelweiss believe that Q2FY23 might be challenging. That said, “we do not envisage heightened imports as domestic prices still remain on a par with the landed price of imports from South Korea and Japan," it added.
On May 3, Shanghai’s municipal government released a list of 24 construction developments permitting a restart, including infrastructure projects. The recent permission by Shanghai municipal government to resume industrial activity is positive, as per Edelweiss.
“In view of the robust credit growth and impulse in China, we believe infrastructure projects are likely to pick up once the lockdown measures are eased, which would support prices and demand," the brokerage note said.
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