The slowdown in the real estate and infrastructure sectors has led to flat sales of steel during the April-June quarter, but the rupee depreciation and easing of raw material prices have helped steel majors maintain profitability.
Sales of steel majors barring JSW Steel have remained flat during the first quarter of 2012-13, due to a slowdown in demand from real estate and infrastructure sectors. Tata Steel posted flat sales during the quarter, while state-owned Steel Authority of India (Sail) believes that its sales during the last three months will not be anything better than flat, though its quarterly figures are yet to be compiled.
CS Verma, Sail’s chairman, told Financial Chronicle that steel prices in the country have remained flat during the past six months, while prices have declined globally. “Although we cannot remain isolated from the economic slowdown in Europe and the US, demand in India is going to continue with the government focusing on infrastructure sector.”
Verma is bullish that steel demand would be strong in 2013-14 driven by growth in infrastructure sector and a better demand scenario, compared with other countries.
Rajat Rajgarhia, director research at Motilal Oswal Financial Services, said he expects net sales of SAIL to increase five per cent from a year ago to Rs 11,800 crore, largely due to higher realisations. “Sales volumes are likely to remain flat from a year ago at 2.75 million tonnes in a seasonally weak quarter,” he said.
Tata Steel said in a statement that its crude steel production increased 1.67 per cent from a year ago to 1.82 million tonnes. However, sales of the company remained flat at 1.59 million tonnes.
Kaushik Chatterjee, chief financial officer, Tata Steel, declined to comment as the company is in the silent period.
During the quarter, JSW Steel, however, reported a 27 per cent growth in crude steel production compared with the year ago period. While flat rolled products grew by 36 per cent from a year ago to 1.61 million tonnes, long products grew 27 per cent from a year ago to 0.44 million tonnes, the company said in a statement.
Vinod Nowal, director and chief executive officer of JSW Steel, told Financial Chronicle that coking coal prices have come down by $10 sequentially to around $210-220 per tonne. “Coking coal prices had touched a peak of around $325 last year.” According to him, steel companies are expected to perform better in the first quarter as input costs have come down while steel prices have remained flat.
Kamlesh Bagmar, an analyst at Prabhudas Lilladher, said although sales have been mostly flattish or marginally lower in the April-June 2012 quarter, profits of steel companies are likely to be maintained due to lower raw material prices and depreciating rupee which kept the landed price of steel higher.
Bhavesh Chauhan, an analyst at Angel Broking, said, “Steel companies are expected to report slightly better profits as coking coal prices have declined in the quarter while steel prices have remained flat.”
According to a Motilal Oswal research report, the rupee depreciation is supporting domestic steel prices even while global steel prices are on downtrend.
The report further said the growth in global production of crude steel is moderating on heightened concerns of slowdown in China. Most geographies registered moderate to low production growth in the past few months.
According to World Steel Association, global crude steel production grew just 0.5 per cent from a year ago to 131 million tonnes in May. China’s crude steel production increased 1.6 per cent from a year ago to 61.2 million tonnes, the European Union’s crude steel production declined 5.5 per cent from a year ago to 15.3 million tonnes, and Indian crude steel production increased 4.3 per cent from a year ago to 6.2 million tonnes in May.
“Prices of key inputs such as coking coal and iron ore have also eased off in the past few months and are likely to correct further, going forward,” said the Motilal Oswal report.
Indian steel demand shrank in June to six per cent as measured on 12-month moving average basis.
“According to our industry interactions, institutional demand has nosedived in June due to liquidity crunch at construction companies. Retail demand is still intact. Long product prices are expected to decline in July,” said Rajat Rajgarhia of Motilal Oswal Financial Services.
“JSW Steel’s volumes have increased but we need to watch out for margins. We expect standalone net sales to increase 20 per cent from a year ago to Rs 8,490 crore, largely due to 23 per cent year-on-year growth in volumes aided by the new furnace,” said Rajgarhia.
Motilal Oswal has maintained its sell rating on JSW Steel, Tata Steel and Sail.
“We expect net sales of Tata Steel India to increase seven per cent year-on-year to Rs 8,430 crore largely due to increase in realisation. Sales volumes are likely to remain flat from a year ago at 1.6 million tonnes, despite commissioning of new blast furnace. Weaker demand and shutdown of two old furnaces has constrained volumes,” said Rajgarhia.
jharnamazumdar@mydigitalfc.com
Source:wrd.mydigitalfc.com
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