Jindal Steel and Power Ltd: Preparing for big upmoves

Many steel companies during the last few months have been beaten black and blue due to uncertainty in the sector and slowing of demand from the real  estate, infrastructure and automobile companies. Moreover, even the global demands were not showing too much buoyancy. 

It is pertinent to mention here that India is the fourth largest steel producing nation in the world, as per the recent figures release by World Steel Association in April 2011. If the proposed expansion plans are implemented as per schedule, India may become the second largest crude steel producer in the world by 2015-16.
The demand for steel in the country is currently growing at the rate of over 8% and it is expected that the demand would grow over by 10% in the next five years. However, the steel intensity in the country remains well below the world levels. Our per capita consumption of steel is around 110 pounds as compared to 330 Pounds for the global average. This indicates that there is a lot of potential for increasing the steel consumption in India.   

Going forward with lowering of interest rate by the RBI and the economy picking up steam, the increase in the demand of steel in India is expected to be 14% against the global average of 5-6%. Demand for steel  should come from infrastructure, construction, housing, automotive, steel tubes and pipes, consumer durables, packaging and ground transportation sectors. The government has set a target for $ 1 trillion of investments in infrastructure during the 12th Five Year Plan. Infrastructure projects (like Golden Quadrilateral and Dedicated Freight Corridor) will give boost to the demand in the steel sector in near future. Moreover, projected New Greenfield & up-gradation of existing Airport shall keep the momentum up. We could see, increased demand of specialized steel in hi-tech engineering industries such as power generation, automotive petrochemicals, fertilizers etc. 

Meanwhile, Iron ore prices meanwhile fell sharply last week on concerns lower Chinese demand and better supply outlook. According to media reports, Associated Chambers of Commerce and Industry of India (Assocham), has said that Basic Custom Duty (BCD) and Countervailing Duty (CVD) exemption on imported iron ore is imperative to revive steel sector. “Non-availability of iron ore arising out of a tighter regulatory regime and various government impositions to weed out illegalities from iron ore mining sector is further stressing the steel production in India,” said Mr D.S. Rawat, secretary general of Assocham. 

According to media reports: Shareholder acceptance period of Gujarat NRE Coking Coal's takeover by Jindal Steel & Power will close on 28 March 2013, a day before the original close date. The acceptance close, which was earlier slated for 29 March, has been moved forward due to Easter Friday. Jindal had made an unconditional on market bid for Gujarat NRE, making an offer of $0.20 per share. One can buy the scrip at the CMP of Rs.352, for a target of Rs.366. Upon closing above Rs.370, it may touch Rs.420 in the short term.