The Hindu Business Line : Steel cos likely to sustain growth on robust volumes

DESPITE a flux in steel prices during the second quarter of 2005-06, robust volumes are expected to help steel companies sustain their good financial performance.

Profit margins may have been under pressure for some of the steel companies with prices of steel edging down in the earlier part of Q2, industry representatives said. However, steel majors such as Steel Authority of India Ltd (SAIL) and Tata Steel, with their access to key raw materials, would be impacted much less than those which fully depend on supply of inputs.

Subsequently, prices of hot rolled (HR) steel moved up, prompting most of the Indian companies to go in for an upward revision. Steel companies are euphoric about the demand scenario in India.

"India's steel demand should grow at seven per cent this fiscal. With steel prices stabilising and off-take firming up, steel companies should be able to sustain growth," said Dr B. N. Singh, Joint Managing Director and CEO, Jindal Vijaynagar Steel Ltd.

At the end of the second quarter, Tata Steel reported an all-time high hot metal, crude steel and saleable steel production. Saleable steel production was 1.21 million tonnes (mt), up 14 per cent from the year-ago period. Sales also rose by 14 per cent to 1.18 mt. Higher volumes are expected to bring down Tata Steel's costs down.

Going forward, the demand scenario is expected to further improve for steel companies. "The third quarter will be a much better period as post-monsoon demand picks up, besides construction activity around the country resumes," Dr Singh said.

India, he believes, is at an advantageous position vis-à-vis global demand for steel, as production in some of the developed countries has remained stagnant.

Prices of some of the inputs such as coking coal and iron ore have also stabilised. This would help companies improve margins. But concerns about input costs remain.

With steel production increasing for most of the Indian producers, input costs would be a major portion of expenditure. However, companies believe that higher volumes would help negate the impact of rising input costs.

However, there were worries at the stock markets about Tata Steel's ability to sustain profit margins. Shares of the steel major dropped by Rs 18 to Rs 358 on the BSE on Tuesday.

The shares have fallen by 16 per cent over the last one month, partly on account of the overall decline in stock prices. Shares of SAIL have moved down to Rs 51.75 from Rs 67.45 a month ago.

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