Metals Periodical – March’26 Strong rebound expected in Q4FY26 margins

Steel spreads remained elevated in March’26, closing Q4FY26 on a very strong growth of 12-40% yoy and ~25% qoq, despite rising thermal coal costs. Quarterly averages indicate a 12–16% yoy improvement in steel realizations across the chain and status quo iron ore price vs. Q3FY26, which should drive a sharp rebound in Q4FY26 EBITDA margins across flats, longs, intermediates and stainless steel. While domestic demand remains resilient and pricing power intact, the sharp rise in thermal coal and prior spike in coking coal suggest near-term cost headwinds, particularly for 1QFY27, although partial normalization is expected as supply disruptions ease. Effectively, we expect improved spreads to sustain in FY27. Some of stainless steel and MS pipe manufacturers are affected due to the Middle East war and will report a miss to our Q4FY26 expectations. However, Sambhv steel and Kirloskar Ferrous Ind. remain unaffected to these disruptions and are expected to report sharp rebound in margins. They are top picks, backed by attractive valuations.

Rebound in spread sustains for the complete quarter:

Both HRC and TMT spreads has sustained a surge in Q4FY26, after 2years of muted levels. As showed in the table above, the complete steel supply chain has witnessed price hikes except iron ore, continued till date, driven by several macro factors like elimination of imports after the safeguard duties, normalising of inventories, domestic mills regaining pricing power as supply was diverted to exports and some support from rising coking coal prices. Similar trend was witnessed in pellet, intermediates like pig iron & DRI and value-added products like ERW and GP pipes. Average prices and spreads of steel products in March'26, continue to track above three-year averages, sustaining the trend that first emerged in February. Stainless steel flat product prices have seen a hike of 5-6% in Q4FY26, on a qoq basis, due to elimination of rebate to Chinese mills and favourable nickel prices (due to supply adjustments in Indonesia).

Raw Material Trend - Coking coal the emerging headwind for Q1FY27:

Iron prices (adjusted for the change in taxation and royalty calculation in January) has remain status quo on a qoq basis. Similarly, Australia coking coal prices which gets accounted with a 3-month lag remains at low levels (~US$200/t) for Q4FY26. However, coking coal prices have surged in Jan’26 due to heavy rainfall and cyclone in Queensland, slowdown in mining and disruptions at rail and port facilities. We expect a 18% qoq hike in coking coal cost to pressure spreads in 1QFY27.

Likely Winners:

We expect Integrated steel producers and intermediate steel to benefit the most from elevated spreads. Pellet producers with captive mines are expected to report a surge in EBITDA margins. From our coverage, we expect strong EBITDA margin rebound for Kirloskar Ferrous Ind. (KFIL) and Godawari Power & Ispat. ERW, GP Converters will have jump in absolute EBITDA despite margin levels may not move much. On the stainless-steel front, we expect a strong uptick in realisation for all names in our coverage – Ratnamani metals, Scoda tubes and Venus pipes. Sambhv steel will be a major beneficiary due to its backward integration on MS pipes, leading to expansion of spread, with noticeable benefits of low-cost inventory and higher pricing in stainless steel business. We expect HRC spreads for steel players to moderate in Q1FY27 due to the spike in coking coal cost.

However, some of the large pipe and stainless-steel manufacturers, have been impacted due to shortage of LPG/ LNG fuel and export disruptions. The stainless-steel pipe manufacturers in our coverage i.e. Ratnamani Metals, Venus pipes & Scoda tubes are expected to be impacted either directly or indirectly due to the Middle East war, resulting into a miss to our Q4FY26 expectation.

Top Stocks Pick from MNCL Coverage:

Sambhv Steel tubes:

Given Sambhv’s Q3 margin compression was driven by realization lag versus raw material costs and partial outsourcing of coils, the current spread environment suggests a meaningful sequential EBITDA/ton recovery in Q4, with operating leverage further aided by higher internal GP capacity and improving stainless mix. Importantly, Sambhv remains unaffected by the LPG supply disruptions linked to the Middle East conflict unlike several LPG-based GP & SS competitors who have curtailed operations, enabling Sambhv to charge a premium. At CMP, stock trades at attractive valuation of 6.4x FY28 EV/EBITDA.

KFIL:

Pig iron spreads should meaningfully improve in Q4FY26. The company has indicated no material financial impact from the 5 days stoppage of the Solapur casting line due to existing inventories. Casting demand remains strong backed by robust sales of tractor and CV. Alloy steel spreads should further support along with value added sales of tubes due to the ONGC order. Stocks trades at very attractive valuation of 5x FY28 EV/EBITDA.

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Analyst:

• Sahil Sanghvi - Senior Research Analyst, Institutional Equities (NISM-201900004744)
• Uvais Khatri - Research Associate, Institutional Equities (NISM-202300049054)

Frequently Asked Questions (FAQ)

What is driving margin expansion in Q4FY26 metals sector?

Higher steel spreads, stable iron ore prices, and improved realizations across products are driving strong EBITDA margin recovery.

Which companies are expected to benefit the most?

Sambhv Steel Tubes and Kirloskar Ferrous Industries are expected to outperform due to strong spreads, backward integration, and attractive valuations.

What are the key risks for Q1FY27?

Rising coking coal prices and supply disruptions could pressure spreads and margins in the upcoming quarter.

Why are some pipe and stainless steel companies under pressure?

Export disruptions and fuel shortages linked to Middle East tensions are impacting operations and earnings expectations.

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