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The partial write-back of the provision made for the District Mineral Fund and increase in volumes are expected to save the day for metal companies in the second quarter of this fiscal.
However, both ferrous and non-ferrous companies are expected to report a sharp fall in revenue due to lower metal prices.
Most of the metal companies have assumed that they have to contribute 50 per cent of the royalty for DMF and made provisions accordingly. However, the Government recently notified that the companies have to set aside only 30 per cent of the royalty for DMF. This had come as a major relief for metal companies, which have won mines after paying huge amounts in the recent auction.
While steel companies are likely to be impacted by both lower volume and fall in prices, non-ferrous companies (producing aluminium, zinc, lead and copper) may register higher production but would suffer from lower London Metal Exchange prices and dip in regional premiums.
Kunal Motishaw, Research Analyst, Reliance Securities, said steel prices have remained subdued and the benefit of 20 per cent safeguard duty on hot rolled coil imports would reflect in the third quarter.
On the back of poor domestic demand, he said EBITDA of all steel companies is expected to hit multi-year low.
Among non-ferrous companies, Hindalco may benefit from higher volumes due to ramp-up of production from the recently commissioned smelters, while Hindustan Zinc, which reported the highest-ever zinc and lead production, is expected to register higher volumes. Nalco may benefit from higher volumes as the company restarted production from the smelter that was shut in the first quarter of this fiscal.
The cost of production (excluding royalty) of zinc for Hindustan Zinc was down at ₹50,236 ($771) a tonne against ₹54,732 ($903) a tonne registered last September quarter, due to higher production and cost-cutting measures adopted by the company. In the near-term, the ramp up of aluminium capacity by China is expected to put pressure on both LME prices and regional premiums. Aluminium prices on LME were down 20 per cent to $1,591 a tonne in the September quarter.
On the zinc front, the outlook on prices is dominated by structural issues including the growth in mine supply keeping pace with consumption. Zinc prices have fallen 20 per cent in the September quarter.
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