Steel company profit margins to come under pressure in June quarter

Suresh P. Iyengar | | Updated on: Jun 06, 2022

KOLKATA: The steel rolls are ready at the Hot Rolling Mill in TISCO plant in Jamshedpur on June 05, 2008. Photo: Arunangsu Roy Chowdhury | Photo Credit: ROY CHOWDHURY A

Value added steel prices fall faster than raw material

Steel companies expect their profit margins in the June quarter to take a severe beating due to lower volume and prices falling faster than that of key raw materials such as iron ore and coking coal.

Steel prices have fallen 16 per cent to ₹63,800 a tonne this month from about ₹76,000 a tonne in April while iron ore lumps prices have dipped 10 per cent to ₹5,500 a tonne (₹6,100) and coking coal prices slipped 14 per cent to $419 a tonne in the same period.

In fact, steel prices have fallen more than that of imports from China. The free-on-board prices of exports from China were down 15 per cent to $776 a tonne ($890).

To make matters worse, domestic demand has almost dried up with the user industry postponing its purchase in anticipation of further fall in steel prices.

In a matter of 15 days, the government has already achieved its target of bringing down steel prices well below the last June level of ₹67,000 crore and it is high time the export duty is reviewed before steel companies slip into the red, said a steel company executive.

Huge capex

Most of the steel companies have lined up huge capex for capacity expansion and negative outlook on the industry will have a cascading impact on their fund raising plans, he added.

In 2008, when a similar export duty was levied, it was rolled back in one month on flat products and in five months on long products. However, the market dynamics now is completely different with the ongoing Russia-Ukraine war flaring up global inflation and economic concern.

Kunal Motishaw, Research Analyst, Reliance Securities, said profit margins of steel companies are expected to be impacted due to the export duty with SAIL possibly reporting an EBITDA per tonne in three digits. JSW Steel is the largest exporter of steel as it ships about 20 per cent of its sales while Tata Steel exports 15 per cent its sales. JSPL, which was shipping long products till now, plans to export speciality steel and expects export to account for 30 per cent or 2.5 mt of sales despite the export duty, he added.

Published on June 06, 2022
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