According to the latest analyzes of Morgan Stanley, the prices of the steel could enter a new bullish phase, supported by an growing internal question and by favorable macroeconomic factors, such as the possible weakening of the dollar and future cuts of interest rates in the United States. In this context, the business bank raised its estimates on the sector and identified two securities with a rise in up to 21%:
The steel sector returns to the center of the attention of global markets.
Because steel can start again
The dynamics of steel prices is historically cyclical, linked to the trend of economic growth, infrastructure investments and manufacturing industry. Currently, several factors contribute to creating a positive scenario:
- Increased demand, especially in India, where the construction sector and that of infrastructures continue to tow the consumption of steel;
- Possible cuts in federal reserve rates and a weaker dollar, which could make Indian steel more competitive internationally;
- The recent Penchino policies, aimed at limiting aggressive innovation and stabilizing production, can reduce the global excess offer, promoting prices.
In light of these elements, Morgan Stanley has revised the judgment on some protagonists of the sector, with a particular focus on JSW Steel and Tata Steel.
Why invest in JSW Stee or Tata Steel
JSW Steel Limited is one of the major Indian steel producers, with a widespread presence thanks to the factories in Karnataka, Maharashtra, Tamil Nadu and Gujarat. The company produces a wide range of hot and cold laminated laminates, as well as flat and long products intended for both the internal and export market.
The preference of analysts for JSW Steel, compared to other competitors, is explained with a greater share of domestic business and a more robust growth outlook. Although the title presents higher evaluations than the sector, the expansion of the margins, favored by the trend of the prices of the HRC (Hot Rolled Coil), makes it particularly attractive.
Tata Steel Limited, on the other hand, represents another giant in the sector, with an annual production capacity of about 35 million tons of raw steel. The company has a more international profile than JSW, thanks to its activities in Europe and Asia, which make it a global player in all respects.
Tata Steel’s geographical diversification is a key factor. On the one hand it reduces the exposure to shock of internal demand, on the other it allows her to benefit from any rebounds of international demand.
In addition, the push to infrastructure investments in India, together with the consolidation of the European market, could support revenues in the coming years.
The risks of investing in steel
Morgan Stanley’s new recommendations must be read in a wider context. The steel remains a cyclical sector, exposed to global macroeconomic fluctuations and, therefore, with a higher risk level than more defensive sectors.
However, the potential estimated Upside – up to 21% for JSW Steel and 20% for Tata Steel – represents a sign of non -negligible trust.
For investors, this means brief-medium term opportunities: those who aim to exploit the rise phase of prices can look at these securities as tools to ride the trend.
But be careful, the volatility of the prices of metals and raw materials, the dynamics of international commercial policy and the possibility of slowing down global growth are variable to be monitored.
