08.7 · Metals, cement & chemicals¶
Sector playbook. Three capital-intensive, cyclical industries where the analytical toolkit of 07.3 — normalised margins, EV/tonne, cost curves, the capital cycle — does most of the work. Steel is fighting Chinese and Vietnamese imports behind a safeguard duty; cement is adding 160–170 million tonnes of capacity in three years; chemicals are working through the hangover of the 2021–23 capex boom. As of September 2026.
Time: ~75 min · Prerequisites: 07.3 Cyclicals & commodities, 05.4 The capital cycle
1. Steel¶
How it makes money. Convert iron ore + coking coal (blast furnace) or scrap/DRI + power (electric arc) into steel; sell at a domestic price linked to the import-parity price (global price + freight + duties). Margin = realisation − raw-material and conversion cost; captive iron ore (Tata Steel, SAIL, JSW partially) and coking coal access define the cost-curve position. Flat products (auto, appliances, pipes) vs long products (construction); value-added grades earn premiums.
| KPI | Notes |
|---|---|
| Volumes (MT) and capacity; utilisation | Capacity ~180 MT (India) heading to 300 MT by 2030 per government targets — verify; the capital cycle in one number |
| Realisation per tonne; EBITDA per tonne | The cycle variables; FY22 super-cycle ₹15–20k/t at the leaders, FY24 trough ₹5–8k/t |
| Raw-material cost: iron ore (NMDC prices), coking coal (Australian benchmark), captive share | Coking coal is the imported, volatile input |
| Imports and safeguard duty | India imposed a three-year safeguard duty on flat steel imports (2025), with a tapered structure proposed by DGTR (Metalbook; Business Standard, Aug-2026); the duty level is the domestic-price floor |
| Exports and CBAM | Europe's carbon border adjustment (from 2026) raises the cost of exporting to the EU (Argus) |
| Net debt / EBITDA; capex plans | Expansions are ₹5,000–8,000 Cr per MT; leverage at the peak funds capacity that arrives at the trough |
| Green steel / carbon intensity | Policy and CBAM exposure |
Valuation: EV/tonne vs replacement cost; EV/EBITDA on mid-cycle EBITDA per tonne; P/B at troughs. Red flags: capex ramp funded by peak-cycle debt; inventory build ahead of price cuts; safeguard-duty dependence. Companies: Tata Steel, JSW Steel, SAIL, Jindal Steel & Power, Jindal Stainless, APL Apollo (pipes).
2. Non-ferrous metals & mining¶
Aluminium (Hindalco, NALCO, Vedanta), zinc/lead/silver (Hindustan Zinc), copper (Hindalco, Vedanta), iron ore (NMDC), coal (Coal India). Price is LME/global; costs are power (aluminium is "solid electricity" — captive coal power is the moat), bauxite/ore grades, and for miners, reserve quality and government royalty/pricing.
| KPI | Notes |
|---|---|
| LME price and premiums; realisation | Dollar price × INR |
| Cost of production per tonne; cost-curve quartile | Hindustan Zinc and NALCO sit in the first quartile globally — verify current |
| Volumes; capacity; captive power; captive mines | Hindalco's Novelis (US/EU rolling) is a separate, less cyclical business — SOTP |
| Government pricing (coal, iron ore), royalties, District Mineral Fund | Policy drivers |
| Dividend policy (PSU miners: DIPAM rules) | Cash returns at peaks |
Valuation: EV/EBITDA on a price deck with sensitivity per $100/t; P/B; dividend yield as a check, not an anchor (07.5 for PSU considerations).
3. Cement¶
How it makes money. Limestone + coal/petcoke + power → clinker → cement, sold regionally (freight makes cement a ~300-km-radius business) to individual home builders (60–65% of demand), infrastructure and real estate. Regional supply-demand sets prices; a few players per region can hold price discipline — until capacity arrives.
| KPI | Notes |
|---|---|
| Capacity (MT), utilisation, volumes | Industry ~650 MT capacity, utilisation ~70–75%; 160–170 MT of additions over FY26–28, 70–75 MT commissioning in FY26 alone (CRISIL via S&P Global) — utilisation will fall before demand catches up |
| Realisation per tonne (by region) | The price variable; South and East are structurally weakest |
| EBITDA per tonne | ₹700–1,500/t across the cycle; leaders (Shree, UltraTech) at the top |
| Cost per tonne: power & fuel (petcoke/coal), freight (lead distance), raw material | Fuel is 30–35% of cost; green power and WHRS (waste-heat recovery) lower it |
| Consolidation | Adani (ACC/Ambuja) and UltraTech acquisitions since 2022 concentrated the top two at ~40%+ of capacity — verify; pricing discipline vs volume push is the live question |
| Net debt / EBITDA; capex per tonne | Brownfield ₹700–900 Cr/MT; greenfield ₹1,000–1,200 Cr/MT — verify recent announcements |
Valuation: EV/tonne (₹ Cr per MT) against replacement cost and acquisition benchmarks; EV/EBITDA on mid-cycle EBITDA/tonne × volumes; regional pricing scenarios. Red flags: volume growth via price cuts in a consolidating region; capex per tonne well above peers; related-party limestone/logistics. Companies: UltraTech, Ambuja/ACC, Shree, Dalmia Bharat, JK Cement, Ramco, Nuvoco, JK Lakshmi, Birla Corp.
4. Chemicals¶
Two very different businesses under one sector tag:
| Commodity chemicals | Specialty chemicals | |
|---|---|---|
| What | Caustic soda, chlor-alkali, soda ash, PVC, methanol, phenol, fertilisers (regulated) | Agrochemical intermediates, pharma intermediates, fluorochemicals, performance chemicals, CRAMS |
| Economics | Price-taker; global capacity cycles (China); power-intensive | Product/process know-how; customer qualification (switching costs); China+1 |
| Margin | 10–25%, cyclical | 20–35% at the 2021–22 peak; compressed to 12–20% in 2023–25 as Chinese pricing and the capex overshoot hit |
| KPIs | Realisation, spreads over feedstock, capacity, utilisation, power cost | Volume growth, product pipeline, customer count/concentration, capex vs contracted demand, R&D |
| Cycle 2021–26 | Post-COVID spike, then normalisation | The classic capital cycle: multiples of 50–80x in 2021, a wave of capex announcements, Chinese dumping and destocking in 2023–24, margins and multiples halved; recovery in 2025–26 is gradual and company-specific (verify current) |
Valuation: commodity — mid-cycle spreads, EV/EBITDA, P/B; specialty — DCF with explicit capex-to-revenue conversion, P/E vs growth with the 2023–24 experience as the base rate for how fast "structural" margins can compress. Red flags: capex announced as % of current capacity > 50% across the industry; "specialty" labels on commodity-like products; customer concentration; environmental compliance issues (Gujarat/Maharashtra plant closures); related-party trading entities. Companies: SRF, PI Industries, Navin Fluorine, Deepak Nitrite, Aarti Industries, Atul, Vinati, Clean Science, Gujarat Fluorochemicals (specialty/fluoro); Tata Chemicals, GHCL, DCM Shriram, Chemplast (commodity); Coromandel, Chambal, GSFC (fertilisers — subsidy-driven, 05.2).
5. Common accounting quirks¶
Inventory valuation swings (NRV write-downs in price falls); capitalised borrowing costs during expansions; captive-power and mining subsidiaries (consolidation, transfer pricing); export incentives; carbon credits; government royalty and DMF provisions; PSU miners' dividend and OFS dynamics; JV accounting (JSW/JFE, Tata/Thyssen history); goodwill from overseas acquisitions (Tata–Corus, Hindalco–Novelis) and its impairment history.
6. The 10-question sector checklist¶
- Where is the commodity price vs its 10-year range and vs the marginal producer's cost?
- Where does this company sit on the cost curve, and why (captive inputs, scale, technology)?
- Industry capacity additions over the next three years vs demand growth?
- Trade policy: duties (safeguard, anti-dumping), export restrictions, CBAM?
- Normalised EBITDA per tonne (or spread), and current vs normalised?
- Balance sheet through the trough: net debt/EBITDA at mid-cycle and trough EBITDA?
- Capex plans: per-tonne cost vs replacement benchmarks; timing vs the cycle?
- Regional pricing and consolidation (cement); customer qualification and concentration (specialty chemicals)?
- Regulatory and environmental exposure?
- EV/tonne, P/B and mid-cycle EV/EBITDA vs history and peers — and what phase does the price assume?
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