- JPMorgan maintains a cautious stance on Indian steel due to persistent cost pressures
- Domestic steel prices rise but margins stay flat as raw material costs increase equally
- JPMorgan prefers JSW Steel over SAIL for better cost efficiency and margin protection
Global brokerage JPMorgan has reiterated a cautious, highly selective approach toward the Indian steel sector, emphasizing that persistent cost pressures are continuing to neutralize recent market price hikes. While domestic Hot Rolled Coil (HRC) prices for raw materials have finally started inching upward, the financial benefit has not yet translated to producers' bottom lines.
According to JPMorgan's latest analysis, the producer spreads remain largely flattish a — a clear indicator that escalating raw material expenses are rising in lockstep with higher realisations, effectively keeping profit margins constrained. The brokerage expects overall steel prices in the domestic market to remain broadly range-bound in the near term. Investors hoping for a rapid margin expansion will likely need to be patient, as the brokerage anticipates that a gradual recovery in spreads will only begin materializing after the upcoming festive season, pushing the timeline for a definitive sector turnaround further out.
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JPMorgan Prefers JSW Steel Over SAIL: Five Key Reasons
1. Against the current macroeconomic backdrop, the brokerage explicitly voiced its surprise regarding the recent, sharp equity rally seen in the PSU steel major Steel Authority of India Ltd. (SAIL). Market analysts cautioned that the current cost escalation is poised to heavily weigh on SAIL's profitability in the coming quarters. The state-run steelmaker's primary structural vulnerability lies in its significantly higher coke rate compared to industry peers, according to brokerages.
2. Because SAIL consumes a larger quantity of coking coal per tonne of steel produced, it is disproportionately exposed to rising input costs. In an environment where raw material inflation is the defining headwind, this operational inefficiency threatens to aggressively widen the profitability gap between SAIL and its more agile competitors.
3. Given the sector-wide pressures, JPMorgan has reaffirmed JSW Steel as its preferred pick in the space. The rationale is firmly rooted in fundamental cost efficiency. In a market cycle where top-line realisations are constrained by flat spreads and producers are receiving similar market prices for their output, a company's internal cost structure becomes the ultimate differentiator.
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4. JSW Steel's proven operational efficiencies and superior margin protection strategies make it the most resilient option for investors. By maintaining a tighter grip on its production costs, JSW Steel is uniquely positioned to weather the current margin squeeze and capitalize most effectively once spreads eventually begin to widen post-festive season, as per analysts.
5.JSW Steel reported a 113% year-on-year jump in net profit to Rs 4,651 crore in Q1FY27, driven by stronger steel prices, higher sales volumes and improved product mix. In the year-ago period, net profit stood at Rs 2,184 crore. SAIL's profit for the first quarter of fiscal 2027 declined 10.4% sequentially. The PSU posted a consolidated bottom-line of Rs 1,644 crore, against Rs 1,835 crore in the preceding quarter. Revenue from operations slumped 14.8% to Rs 26,246 crore from Rs 30,813 crore.
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