🌧️ Can Monsoon Derail Steel Margin Gains? Elara Capital Predicts Seasonal Weakness in Prices
India's steel sector, which has witnessed improved margins in recent quarters due to robust demand and firm pricing, may face headwinds as monsoon season approaches, according to a report by Elara Capital.
The brokerage firm has flagged concerns over a likely seasonal dip in steel prices, driven by reduced construction activity and infrastructure projects slowing down during the rainy season.
📉 Elara Capital's Warning: Seasonal Correction Expected
Elara Capital’s latest commodities outlook highlights the following:
Construction activity typically slows between June–September due to rainfall disruptions.
This leads to a demand drop, especially in long steel products used in real estate and infrastructure.
Domestic steelmakers may cut prices to stimulate offtake, putting pressure on margins.
Export opportunities may remain limited due to sluggish global demand and Chinese overcapacity.
“While Q1FY26 has started strong, the monsoon may trigger a 5–8% correction in average steel prices,” Elara Capital noted.
📊 Current Price Trends vs Forecast
Hot Rolled Coil (HRC) prices had gained nearly ₹2,000–₹2,500/tonne over the past two months due to inventory restocking and project push.
However, Elara expects this rally to fizzle out by July, returning to average realizations of ₹57,000–₹58,000/tonne.
🧾 Implications for Steel Companies
Margin Compression Likely
Companies like JSW Steel, Tata Steel, and SAIL may report weaker operating margins in Q2 if prices fall and costs remain high.
Inventory Risks
Steel firms with higher inventories may face valuation markdowns as prices soften.
Stock Impact
Analysts caution investors on short-term volatility in metal stocks, especially during the monsoon quarters.
📈 Long-Term Outlook Remains Intact
Despite short-term hiccups, the long-term steel demand story remains robust, backed by:
India’s infrastructure push under NIP (National Infrastructure Pipeline)
PLI scheme for specialty steel
Real estate recovery in urban markets
Elara believes post-monsoon demand recovery will offset interim margin stress, making Q3 and Q4 better in terms of profitability.
❓FAQs: Steel Sector and Monsoon Impact
Q1: Why do steel prices fall during monsoon?
Rain disrupts construction and infrastructure work, reducing steel demand temporarily, especially for long and flat products.
Q2: What did Elara Capital say about steel margins?
They warned of seasonal pressure on margins due to an expected dip in steel prices during the monsoon season.
Q3: Which companies could be impacted?
Major producers like Tata Steel, JSW Steel, SAIL, and Jindal Steel may see short-term impact on earnings.
Q4: Will prices recover post-monsoon?
Yes, demand typically rebounds in Q3 and Q4, especially with infrastructure projects gaining pace after the rains.
Q5: Is this a good time to invest in steel stocks?
Short-term caution is advised. Long-term investors can look for buying opportunities after the monsoon-led correction.
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