Steelmakers may outperform non-ferrous peers in Q2 as higher volumes support earnings

Non-ferrous companies are expected to see a sequential decline in earnings, with revenue and Ebitda expected to fall 2% and 13%, respectively. The decline in average LME aluminium prices is likely to weigh on their profitability.

Steel volumes are likely to rise at a single-digit sequentially while remaining largely unchanged year-on-year, according to Motilal Oswal Financials Services. The brokerage attributes this to maintenance outages at major producers in the first half of FY27 and the gradual ramp-up of new capacities.

Average domestic hot-rolled coil (HRC) prices rose about 2% sequentially to ₹59,669 per tonne, according to ICICI Securities. In contrast, average rebar prices fell about 6% to ₹53,600 per tonne, indicating companies with greater exposure to long products face more pressure on realisations. Tata Steel is likely to outperform among steelmakers helped by stronger flat-steel realisations, higher India volumes and captive raw materials. Jindal Stainless is expected to outperform peers in the September quarter, with brokerages forecasting 8-15% quarter-on-quarter (QoQ) volume growth.

Average coking coal prices increased 11% sequentially to $265 per tonne, which may affect profitability of steel companies according to 360 ONE Capital. For non-ferrous companies, brokerages expect sequential Ebitda decline due to a lower aluminium prices. The average London Metal Exchange (LME) aluminium price declined to about $3,200 per tonne in the September quarter from around $3,600 per tonne in the previous quarter as supply constraints eased, according to JM Financial. While aluminium prices declined during the quarter, alumina prices rose nearly 13% sequentially to $346 per tonne, adding to input cost pressures for aluminium producers.

However, higher copper and zinc prices may offer some cushion. The average LME copper price rose 4.6% quarter on quarter to $14,024 per tonne in the September quarter. Zinc price increased 7.6% sequentially to $3,741 per tonne according to 360 ONE Capital. Hindalco may benefit from stronger copper prices, while Vedanta may gain from higher zinc realisations. However, the benefit will depend on the contribution of these businesses to each company's overall earnings and any offsetting cost pressures.