Nomura's Steel Sector Call: Rebar Rebound and Resilient Margins

Brokerage Nomura has retained its bullish stance on India's steel sector, keeping Buy ratings on Tata Steel, JSW Steel, Jindal Steel and Lloyds Metals & Energy. The call rests on a favourable price mix in the domestic market, where flat steel prices held nearly steady while rebar (construction-grade steel) delivered its first weekly gain after a three-month slide. Hot-rolled coil (HRC) dipped a marginal Rs50 per tonne to Rs57,800, while rebar jumped Rs350 to Rs48,300, narrowing the flat-long spread to a still-healthy Rs9,500 per tonne.

India's HRC spot margin improved to Rs34,609 per tonne in July, a modest month-on-month rise of Rs324. On the cost side, imported coking coal fell $6 per tonne to $224, and global iron ore was stable at around $93 per tonne; domestic iron ore prices also eased after NMDC cut its lump and fines rates. Meanwhile, Indian crude steel production rose 3.9% year-on-year to 14.06 million tonnes in June, and finished steel consumption grew 7.2% to 14.19 million tonnes, underscoring strong domestic demand even during a seasonally softer period.

Global headwinds are present but manageable. Chinese export HRC prices dipped to $495 per tonne, and Europe saw a modest recovery. The US continues to apply 25%–50% Section 232 tariffs on steel, aluminium and certain derivative products, but Nomura stresses that exports to the US represent only a small fraction of India's total, limiting the direct hit. The brokerage expects the price hikes rolled out over late FY26 and the first quarter of FY27 to more than offset any cost inflation, including potential disruptions from West Asia.

What the Price Data and Trade Dynamics Mean for Indian Steelmakers

Rebar Price Recovery Marks a Turning Point

The Rs350-per-tonne weekly gain in rebar after three months of correction is significant. It suggests that construction and infrastructure demand is absorbing supply, supported by government capex and a recovery in affordable housing. If the trend holds, it would narrow the gap between flat and long product demand, improving the product mix for integrated mills like Tata Steel and JSW Steel.

Flat Steel Margins Remain the Profit Engine

Flat products (HRC, used in auto and consumer durables) command a substantial premium, with a spread above Rs9,500 per tonne. The resilience of HRC spot margins—above Rs34,600 per tonne—indicates that even a slight dip in benchmark prices did not dent profitability, partly because cheaper coking coal kicked in. For producers, this means the current margin structure can buffer against a moderate demand slowdown or further import pressure.

US Tariffs Are a Manageable Headwind

Section 232 tariffs on Indian metals are high, but the actual exposure is limited. Nomura's analysis shows that only a tiny share of India's steel exports heads to the US, so the direct revenue hit is minor. The bigger risk is that the tariffs discourage Indian firms from exporting higher-value products, but for now the domestic market's pull remains strong enough to absorb excess production.

China's Overcapacity Keeps Global Prices Under Pressure

Chinese steel exports remained robust at 10.3 million tonnes in June, adding supply to an already weak global market. While China's domestic HRC prices are below Indian levels, India's import volume (0.7 million tonnes) is still less than exports, signalling that Indian steel is competitive enough to find buyers abroad. However, if Chinese overcapacity deepens and the economy continues to lean on exports, it could compress regional prices and challenge Indian mills' export margins.

Investor Takeaways from Nomura's Indian Steel Outperform Calls

  • Investors should track the rebar price series closely: a sustained recovery would confirm a broader demand lift and support Nomura's thesis that price hikes will stick through 1HFY27.
  • Monitor the spread between HRC and rebar; a narrowing above Rs9,000 per tonne is healthy, but a sharp drop would signal that infrastructure demand is failing to keep pace with flat steel consumption.
  • US tariff developments remain a low-probability risk for earnings, but any escalation that quotas non-US markets could indirectly pressure global prices. For now, the direct impact on Tata Steel and JSW is negligible.
  • The modest margin expansion in July, driven by lower coking coal costs and stable iron ore, indicates that the worst of input cost inflation may be behind. Any further softening in coking coal would be a clear tailwind.
  • Domestic demand data (June consumption up 7.2% YoY) is a strong base case. Watch the monthly output and net import figures: a sustained rise in imports above 0.8 million tonnes would warrant caution on pricing power.

Risk & Opportunity Assessment

Commercial RiskMediumDomestic demand remains strong, but a slowdown in infrastructure spending or a reversal of rebar price gains could depress margins from current levels.
Competitive RiskMediumChinese exports at lower prices remain a threat, especially if Chinese mills intensify dumping in Asia. Indian net import position in June (imports exceeding exports) suggests caution.
Regulatory RiskMediumSection 232 tariffs are a fixed cost on a small share of exports; however, a broader trade war or new US measures could create uncertainty. Domestically, no major regulatory hurdles are flagged.
Reputation RiskLowNo material ESG or governance issues mentioned that could impact the investment case for these diversified Indian steelmakers.
Technology DisruptionLowNo specific technology shift threatens the core business model of large integrated steel producers in the near term.
Commercial OpportunityHighThe current margin structure and price-hike cycle can absorb cost inflation and deliver strong earnings growth. A sustained rebar recovery would further lift utilisation and profitability for mills with construction-grade exposure.