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Tata Steel, JSW Gain After RBS Says Prices May Rise

Tata Steel Ltd., Steel Authority of India Ltd. and JSW Steel Ltd. gained after RBS Equities (India) Ltd. said the nation’s top producers may raise prices as much as 4 percent next month because of lower imports from China and a surge in rural demand.

Tata Steel rose 2.5 percent to 645.90 rupees at close of trading today in Mumbai. Shares of Steel Authority gained 0.5 percent to 206.90 rupees, while JSW Steel advanced 3.5 percent to 1,319.90 rupees.

Steel prices, which rose an average 4 percent in September, are likely to gain for the second consecutive month, said Rahul Jain, an analyst at RBS in Mumbai. Bulk of the demand may come from farmers who are expected to spend more during the festival season after a robust monsoon, said Nikhil Agarwal, an analyst at Kim Eng Securities India Ltd. in New Delhi.

An above-average monsoon, the main source of irrigation for the nation’s 235 million farmers, is expected to produce a record crop this year, boosting agricultural incomes and sales of homes, tractors and motorcycles. China’s move to restrict power supplies to mills will likely diminish exports to India, lifting demand for Indian-made steel.

“Indian steelmakers lost out to imports in the first five months of this fiscal year,” said Jain, who has a “buy” rating on shares of Tata Steel and Steel Authority and a “hold” rating for JSW. “In China, there are efforts to lower output, which may lead to a drop in shipments to India.”

Diwali Demand

India’s steel demand, which grew 7.6 percent last fiscal year, is forecast to grow 10 percent in the year ending March 31, helped by demand for automobiles and spending on roads and ports, G.K. Basak, executive secretary of steel ministry’s joint plant committee, said on Sept. 6. Sales of cars, motorcycles and houses start increasing from September and peak on the day of Diwali, the festival of lights, usually in November.

“Higher international prices and estimated demand in India leaves room for some price increase in October,” JSW Marketing Director Jayant Acharya said on Sept. 23.

Benchmark world hot rolled coil prices rose 3.6 percent this month, according to Steel Business Briefing.

The monsoon this month in India has been 122 percent of the 50-year average as of Sept. 14, in contrast with last year when rains were the least since 1972. The nation may have a record corn crop in excess of 20 million metric tons in the year through June 2011, according to Adani Enterprises Ltd., the country’s biggest non-state trader of farm goods. The wheat harvest may be a record 82 million tons.

Construction companies, which stopped work in northern and western India due to excessive rains, will restart, adding to the demand, Kim Eng’s Agarwal said. India’s passenger-car sales jumped 33 percent from a year ago to a record in August.

The rise in demand since September has led to a drop in inventory levels of steelmakers, RBS’s Jain said.

Steel Authority’s inventory fell 11.3 percent to 496,127 tons as of Sept. 22 from 559,061 tons on Aug. 15, while deliveries rose 66.2 percent. JSW also expects a 100,000-ton drop in inventory by Sept. 30 from the June 30 level, Chief Financial Officer Rajeev Pai said on Sept. 23.

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