Tata Steel share price is beating rivals; remains in a correction

The Tata Steel share price is stuck in a correction phase after falling by over 15% from its highest point this year. It was trading at ₹153.85 on Thursday, up by about 8% from its lowest point this month. 

Tata Steel stock has done better than rivals

Steel stocks are not doing well this year as the industry goes through a major challenge. As shown above, only Tata Steel stock has risen this year, with the others like ArcelorMittal, JFE Holdings, Nucor, and Posco Holdings being in the red. 

This trend is happening as signs emerge that the global economy is slowing. China, the second-biggest economy in the world, grew by just 4.7% in the second quarter, missing the analysts estimate of 5.1%.

China’s performance is important in the steel industry because it is the biggest producer and consumer. 

For decades, China’s growth was led by the construction industry as the country built millions of homes and a huge network of roads and rail. Now, this growth has ended, and the actions by the government to stimulate the real estate sector are off to a slow state.

The US economy, another big consumer of steel, is also slowing as Joe Biden’s infrastructure projects take time to materialise. Recent data showed that the US economy expanded by less than 2.8% in the second quarter. While this was a good growth rate, key sectors like construction are still under pressure. 

Iron ore prices are falling

This sluggish growth of the global economy and huge inventories in China explains why steel and iron ore prices have fallen. Data shows that steel price has dropped by over 30% from its highest point this year and the trend may continue in the coming months.

Inventories in Chinese ports have soared to over 150 million tons even as steel output in the country has continued to drop. These inventories rose as China’s ore imports jumped by 6.7% in the first seven months of the year. 

China has continued dumping steel to the international market, which is affecting prices. It exported 8-9 million tons this year.

Companies like Tata Steel benefit from low iron ore prices because it is their biggest cost. However, falling prices can also be a sign of weak steel demand. 

Tata Steel supported by India demand

Therefore, Tata Steel share price has done better than rivals because of its exposure to the Indian market, which is still growing. 

This growth will likely continue rising as the government continues spending money on huge infrastructure projects. Additionally, the real estate industry is being supported by non-residential Indians (NRI). 

The most recent Tata Steel earnings were a reflection of the company’s subdued demand and low prices. 

Its revenue dropped by 7% in the last quarter to ₹547 billion or $6.7 billion from ₹594 billion a year earlier. However, despite this decline, the company’s cost management helped it grow its profits during the period. Its EBITDA rose to ₹68 billion while its profit after tax came in at ₹9.9 billion

Looking ahead, Tata Steel will continue benefiting from robust Indian demand and low raw materials costs. Coking coal, an important cost item, has dropped from $342 per metric ton in 2023 to $243 and the trend may continue. 

The other potential catalyst for the stock will be interest rates. In the past few years, major banks like the Federal Reserve, Bank of England, and the European Central Bank (ECB) have kept interest rates higher for longer.

Higher interest rates lead to a sharp decline in construction output, which affects steel prices. Therefore, as these banks start to unwind these policies, there is a likelihood that the construction sector will start recovering.

A key challenge for Tata Steel is in the UK, where the company has said that it was losing over £1 million per day. It has already shut down one blast furnace, with the next shutdown expected in September.

Tata Steel share price analysis

The daily chart shows that the Tata Steel share price peaked at ₹180.87 in July. It has now retreated by over 15% as concerns about demand continued rising and as iron ore slumped.

It has moved below the 23.6% Fibonacci Retracement point at ₹156 and the 50-day Exponential Moving Average (EMA). The stock has bounced back slightly recently and moved above the 200-day moving average. 

It has also moved to the first support of the Andrew’s pitchfork tool. Therefore, the overall view is that the Tata Steel share price will remain under pressure as investors watch the ongoing demand movements. 

Analysts are generally bullish on the company’s stock. 12 of the 28 analysts tracking the stock have a buy rating while 8 have a hold rating. 7 of them have a sell rating as they worry about the company’s demand. The average stock target is ₹168, down from over ₹175 earlier this year.

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