Steel companies' margins may improve on lower input costs

The profitability of most domestic steel makers is set to improve by ₹500-₹2,000/tonne quarter-on-quarter in the three months to September, largely aided by lower cost of a key raw material, according to analysts, even as steel prices fell in the seasonally weak period. The cost of coking coal, which is used in the production of steel, is down by $45-$60 per tonne from the previous quarter. While its prices have surged recently, companies are using lower-priced inventory, which will help bring down costs.

The improvement in profitability that steel producers see, though, will be capped because of steel prices moving 3-5% lower during the quarter, with prices of long steel products seeing an even sharper decline of up to 8%, according to analysts.

Steel Cos’ Margins may Improve on Lower Input Costs

Steel prices, which have been weakening since April this year, bottomed out in August amid the monsoon season in India and sluggishness in the Chinese property market. While prices have moved upwards since then, the average prices during the quarter were still lower as compared with the June quarter.
“We expect JSPL‘s (Jindal Steel and Power) Ebitda/t to decline by ₹1,661 Q-o-Q due to a steeper fall in long prices and less availability of iron ore from its captive iron ore mine,” Nuvama Institutional Equities said in an earnings preview.

State-owned Steel Authority of India (SAIL), meanwhile, is seen clocking the best performance, helped by robust sales growth and lower cost of coking coal. Analysts estimate the company’s sales volume to have grown by around 15% sequentially.

This is in contrast to the production volumes of other leading steel makers. The production volumes of JSW Steel and Tata Steel were marginally lower sequentially but still substantially higher from a year ago.

Apart from their earnings and operational metrics, the commentary from steel producers will be in focus when they announce their earnings for the September quarter.
“Things to watch out for are domestic demand and inventory, steel price and spread guidance, and an update on capex and expansion plans,” CLSA Asia Pacific Markets said in a note.If the recent strength in prices of steel sustain, steel spreads are likely to improve in the December quarter, Axis Securities said in a note.

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This article was originally published by Indiatimes.com. Read the original article here.