Metals Periodical – February’26 - Sharp rebound in profits for Q4FY26; all eyes on sustenance
Steel spreads have moved into the upper quartile of their three-year range in February’26, due to a 13-17% price hike (vs. Q3FY26 avg.) across the steel chain and stable RM cost, which should strongly benefit steel players across the flat, long and intermediate universe. This surge is largely driven due to the combination of reduction in imports, uptick in domestic demand and normalisation of inventories. Although the spike in coking coal cost poses a threat on spreads in 1QFY27 which should moderate gradually with end of seasonal disruptions in Australia. Our stainless-steel universe has witnessed much strong prices hikes due to benefits from China’s policies and favourable nickel price. Effectively, we expect improved spreads to sustain in FY27, leading to better profits for complete steel chain. Sambhv steel and Kirloskar Ferrous Ind. remain our top picks, backed by attractive valuations.
| Prices | Feb-26 | YoY | MoM | 3Y Avg | 3Y Percentile |
|---|---|---|---|---|---|
| HRC – Rs/tonne | 52,100 | 14% | 5% | 50,882 | 58% |
| TMT – Rs/tonne | 49,795 | 3% | 1% | 48,596 | 69% |
| Iron ore fines – Chhattisgarh – Rs/tonne | 4,792 | -5% | 3% | 4,787 | 50% |
| Iron ore lumps – Chhattisgarh – Rs/tonne | 6,290 | -11% | 2% | 6,617 | 33% |
| Thermal coal – US$/tonne | 102 | 10% | 10% | 102 | 53% |
| Coking coal – US$/t | 247 | 23% | 6% | 245 | 64% |
| Pig iron – foundry grade | 42,586 | 14% | 2% | 42,156 | 50% |
| Sponge iron | 27,386 | 6% | 5% | 27,258 | 61% |
| Scrap price | 35,341 | 8% | 6% | 35,151 | 64% |
| Pellet price | 10,381 | 6% | 8% | 9,709 | 97% |
| Stainless Steel CRC – Series 200 (proxy) | 1,35,250 | 2% | 2% | 1,33,518 | 75% |
| Stainless Steel CRC – Series 300 | 2,03,500 | 11% | 2% | 1,98,305 | 72% |
| ERW pipes | 52,067 | 13% | 5% | 50,932 | 58% |
| GP pipes | 69,125 | 16% | 5% | 66,151 | 72% |
| Spreads – HRC | 22,203 | 56% | 9% | 17,462 | 83% |
| Spreads – TMT | 29,483 | 11% | -1% | 26,735 | 78% |
| Spreads – Pig Iron | 13,070 | 105% | 0% | 9,109 | 89% |
| Spreads – Pellets | 4,245 | 29% | 17% | 3,580 | 86% |
What drives the rebound in spreads after 2 years:
Both HRC and TMT spreads has witnessed a surge after 2years of muted levels. The complete steel supply chain has witnessed price hikes (13-17% yoy, 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. The average price of steel products for Feb’26 has now crossed the 3-year averages after almost 2years. Stainless steel flat product prices have seen a hike of 20-25% (vs. Q3FY26) due to elimination of rebate to Chinese mills and favourable nickel prices (due to supply adjustments in Indonesia).
Raw Material Trend - Supportive but not for long:
Iron prices (adjusted for the change in taxation and royalty calculation in January) has remain status quo. 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. This cost pressure will be accounted in Q1FY27.
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 margins. From our coverage, we expect strong margin rebound for Kirloskar Ferrous Ind. (KFIL) and Godawari Power & Ispat. ERW, GP Converters will have jump in absolute EBITDA despite margin levels not moving 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 and margins with some benefits of low-cost inventory on stainless steel business.
We expect spreads for steel players to moderate in Q1FY27 due to the spike in coking coal cost. However, we expect coking coal cost to also moderate post the end of seasonal disruptions in Australia. Therefore, we expect the steel pack to report much better spreads in FY27 vs. FY26, should the price hikes sustain along with the resilient domestic demand.
Top Pick:
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. At CMP, stock trades at attractive valuation of 6.7x FY28 EV/EBITDA.
KFIL:
Pig iron spreads should meaningfully improve along with higher sales (unlike shutdowns in Q3FY26). 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 5.4x FY28 EV/EBITDA.
| Company | Rating | CMP / TP (Rs) | Upside |
|---|---|---|---|
| Ratnamani Metals & Tubes | BUY | 2390 / 2460 | 3% |
| Venus Pipes & Tubes | BUY | 1063 / 1680 | 58% |
| Scoda Tubes | BUY | 131 / 250 | 91% |
| Kirloskar Ferrous Industries | BUY | 382 / 570 | 49% |
| Godawari Power & Ispat | BUY | 266 / 310 | 17% |
| Sambhv Steel | BUY | 97 / 155 | 59% |
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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)
Executive Insight: Steel spreads have rebounded sharply after two muted years, supported by pricing power, reduced imports and stable raw material costs. Below are key questions investors should evaluate while assessing FY27 earnings sustainability.
1. What triggered the rebound in steel spreads?
Spreads improved due to 13–17% price hikes across the value chain, elimination of imports after safeguard duties, normalization of inventories and resilient domestic demand.
2. Are current spreads sustainable into FY27?
While Q1FY27 may see moderation from elevated coking coal costs, spreads are expected to remain structurally stronger in FY27 if domestic demand and pricing discipline persist.
3. Which segments benefit the most?
Integrated steel producers, pellet makers with captive mines, pig iron and intermediate players are positioned for margin expansion. Stainless steel producers benefit from favorable nickel trends and China-related supply shifts.
4. What are the key risks to monitor?
Volatility in coking coal prices, reversal in domestic pricing power, inventory build-up and policy changes remain key variables.
5. What are the preferred ideas?
Sambhv Steel Tubes and Kirloskar Ferrous Industries stand out on valuation comfort and operating leverage potential, supported by improving spreads and demand visibility.
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