As steel prices surge, Motilal Oswal Financial Services sees the domestic steel cycle shifting from a volume-led recovery to pricing- and cost-led earnings growth.
In its latest report released on Thursday, the brokerage said prices have remained firm in the ongoing second quarter of FY27 despite seasonal weakness, supported by lean channel inventories, maintenance-led supply constraints and rising input costs.
Domestic hot-rolled coil (HRC) prices jumped 7% month-on-month to a four-year high of Rs 62,000 per tonne in September, while cold-rolled coil (CRC) prices rose 8% MoM to Rs 70,500 per tonne.
Rebar prices also recovered sharply to Rs 56,800 per tonne in September, from Rs 48,850 per tonne in June. This rally signals a broad-based pricing strength across both flat and long products, Motilal Oswal said.
The domestic brokerage attributed the improvement in steel prices mainly to cost pass-through, adding that input costs (coking coal, iron ore and pellet) have simultaneously increased, raising the cost base for steelmakers. Premium Australian coking coal price has risen to $300 per tonne from $260 per tonne in June 2026, implying that every $10 per tonne increase in coking coal adds nearly $7-8 per tonne to input costs, creating a margin headwind. Iron ore and pellets prices also remained firm during the muted demand cycle, it added.
Domestic steel volumes, meanwhile, remained fundamentally healthy. India produced around 67.4 million tonnes of finished steel during the period between April and August this year, up 3.7% YoY, while finished-steel consumption grew by a stronger 7.2% YoY to 70.3 million tonnes, according to the brokerage. The faster growth in consumption relative to production has kept the domestic market relatively tight, it added.
Motilal Oswal noted that the global volume backdrop is equally supportive from a supply perspective. Global crude steel production declined 0.6% YoY to around 1.08 bt during the period between January and July this year, with China’s output falling 3.1% YoY to nearly 577 mt. The structural decline in Chinese steel output is important for global market balance given China’s major role in global steel production and exports, the domestic brokerage noted.
“In the near term, we remain constructive on domestic steel pricing as we believe the domestic steel cycle is transitioning from volume-led recovery to pricing and cost-led earnings growth. Lean inventories, constrained supply, resilient underlying consumption and global cost inflation provide the foundation for higher steel prices. If postmonsoon demand normalizes as expected, the sector could enter 2HFY27 with a considerably stronger realization environment than the current consensus assumptions imply,” Motilal Oswal said.
The domestic brokerage believes the immediate earnings trajectory will be backed by positive realisation momentum, while margin sustainability will depend on the mills’ ability to pass through further price increases as the impact of cost inflation will be evident steadily in the coming quarters. Companies with stronger cost positions, captive raw materials and greater downstream or value-added exposure should be better positioned to defend margins, it added.
Motilal Oswal named JSW Steel and Tata Steel as its top picks among the steel companies. JSW Steel shares have gained around 9% in 2026 so far and 14% in one year. In the longer term, the shares of the company jumped 58% in three years and 87% in five years. The company has a market capitalisation of around Rs 3.12 lakh crore.
Tata Steel shares, meanwhile, rose around 3% in 2026 so far. In the longer term, the shares of the Tata Group company have gained 9% in one year, 44% in three years and more than 35% in five years. The company has a market capitalisation of around Rs 2.34 lakh crore.