Steel Stocks Outlook: Up next week on rising demand

Steel shares are expected to post fresh gains next week on rising demand from housing and construction industries, analysts said today. A 50 bps cut by the U.S. Federal Reserve in interest rate has raised hopes of a similar cut in India, lifting sentiment for real estate, automobile and consumer durables sectors, which rely heavily on borrowed spending from consumers.

The news of the rate cut by the Fed sparked a rally in steel stocks. Steel Authority of India Ltd. and Jindal Steel and Power led the sector, gaining 12.4% and 16.9% during the week, respectively.

Analysts said a global buoyancy in metals will drive prices of the metal upward. Indian steelmakers hiked prices for September by 700-1,500 rupees per tn and may raise the price further in October.

With the continued strong demand, the international steel scenario remains buoyant. Strong positive growth trends are foreseen in Africa, Asia, and South America in 2007," SAIL Chairman S.K. Roongta said while addressing the company's 35th annual general meeting Thursday.

However, the rising rupee continues to put a downward pressure on prices in India by lowering the landed import prices, considered a benchmark by Indian steelmakers.

Spiralling costs of raw material, such as coking coal and iron ore remain a concern for the industry. Freight costs are also likely to rise further in the wake of rising crude oil prices," an analyst with a domestic brokerage said. The Indian crude basket was at $ 76.04 per bbl Thursday.

Following are week-on-week closing prices of key steel shares, in rupees, on the National Stock Exchange:

Company Closing Level Closing Level %Change Sep 21 Sep 14 Steel Authority 192.95 171.60 12.4 Tata Steel 740.45 703.75 5.2 JSW Steel 726.55 683.20 6.3 Jindal Steel & Power 5379.60 4603.30 16.9 Nifty 4837.55 4518.00 7.1 Sensex 16564.23 15603.80 6.1