Stocks of India’s largest steelmakers – Tata Steel, JSW Steel and SAIL – have gained handsomely since last year’s budget. Most of the other stocks in this sector too have managed to rally in this period, despite the year-on-year fall in profit reported by most of the prominent players in 2013-14.
Even as JSW Steel and SAIL reported higher sales in 2013-14, their profits declined sharply. Bhushan Steel fared even worse with sales down from a year ago. The lone exception was Tata Steel which registered a sharp jump in profit in 2013-14.
This dismal performance by the majors was due to Indian steel consumption growing by only a meagre 0.6 per cent in 2013, the slowest in four years. Realisation per tonne of steel sold too declined in 2013-14.
Rising raw material expenses were another concern for steelmakers in 2013-14.
Indian steel manufacturers source almost all their coking coal requirement through imports. With the rupee depreciating sharply last year, companies saw their input costs go up despite a fall in global coking coal prices.
Also, unlike SAIL and Tata Steel India which meet their iron ore requirement from their mines, others do not have access to a captive source. The situation is however expected to improve. One, with the new government expected to revive growth; steel demand can pick up. Second, the rupee has stabilised and steelmakers stand to benefit from any weakness in global raw material prices. With a fall in global iron ore prices, some large steel manufacturers are now turning to cheaper imports of the metal.
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