Economy

Price hikes, higher sales set to boost steel makers' Q4 earnings

Vishwanath Kulkarni New Delhi | Updated on November 15, 2017

BL07_P3_STEEL

Long products offtake improves, while that of flat ones remains a concern

Steel makers like SAIL and Tata Steel are expected to deliver better fourth quarter earnings on higher sales aided by product price hikes.

Analysts see a sequential improvement in operating profit margins of steel makers for the January-March quarter. Softening input costs like that of coking coal and appreciation of rupee during the quarter will aid the margin improvement.

The January-March quarter, traditionally the strongest, has seen a rebound in demand for steel makers. In the earlier quarters, the demand had remained sluggish with consumption growing by a mere 1.8 per cent in first half of 2011-12.

However, the offtake picked up in the October-December quarter and accelerated further in the January-December period. The Joint Plant Committee under the Ministry of Steel estimates growth in steel consumption for April-February period at 5.2 per cent over corresponding last year at 62.8 million tonnes.

The rush to complete tenders for Government projects especially in the last quarter of the terminal year of the 11th Five Year Plan drove the sales volumes for the steel companies during the quarter.

The improved off-take for long products like TMT bars used mainly in the construction and infrastructure sector prompted the steel makers to hike price by up to Rs 2,000 per tonne during the quarter. SAIL, the country's largest producer hiked the prices twice – in January and March during the quarter.

Tracking the improved market sentiment, stocks of steel makers registered gains during the quarter. Scrips of Tata Steel and JSW Steel gained 38 and 35 per cent respectively, while SAIL and Jindal Steel gained about 18 per cent each.

The recent hike in rail freight rates for commodities including iron ore and coal may result in higher production costs for the steel makers. However, the steel companies might pass on such incremental costs to consumers, resulting in further hike in prices.

Analysts expect the steel prices to stay firm in the near term especially in the April-June quarter on high demand for long products. However, the poor off-take for flat products used by automobile and consumer durable industry remains a concern.

> vishwa@thehindu.co.in

Published on April 06, 2012

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