Steel stocks: Caught in the midst of a global storm

Maulik Madhu | Updated on January 27, 2018 Published on February 26, 2016


Cheap imports have dented realisations

Most steel company stocks have fallen sharply over the past year, with some losing as much as 70 per cent. The glut in the global steel market has hurt the realisations of steel companies in India just as in the US and Europe. As domestic demand wanes in China, the country’s soaring cheap steel exports have found their way into India, where consumption is growing faster than any other country in the world. This has hurt the realisations of Indian steel manufacturers. In fact, given the challenging global steel environment, some of India’s largest steelmakers have also seen a downgrade of their credit rating.

During April-December 2015, even as India’s steel consumption grew 4.7 per cent (year-on-year) to 59 million tonnes, imports jumped 29 per cent to 8 million tonnes, eating into the output of domestic manufacturers. The impact of this is visible in the poor financial performance of steel companies in the last few quarters.

All major steel producers have reported a sharp fall in revenue and operating profit for the nine-month period ended December 2015.

Falling pack

The decline in operating profit has come about despite the fall in raw material prices. The state-run Steel Authority of India, in fact posted a loss of ₹2,525 crore at the operating level, during this period.

The deterioration in performance was even more severe at the net-profit level. Tata Steel saw its consolidated net profit during April-December 2015 shrink to one-tenth of what it was a year ago. With its overseas operations facing headwinds too, the company booked an impairment charge of over ₹7,900 crore on its European business in the September quarter.

Jindal Steel & Power and Bhushan Steel, which were already in the red, widened their loss during April-December 2015 compared with the same period last year.

JSW Steel too slipped into the red during the latest nine-month period. Making provisions for the diminution in the value of its investment in some of its overseas subsidiaries and for loans extended to them, on the back of the commodity downturn, weighed on the company’s earnings. But, unlike most other steel stocks that have fallen since the last Budget, the stock of JSW Steel managed to gain about 9 per cent. Import protection measures, such as the 20 per cent safeguards duty on some steel products for 200 days in September and minimum import prices for a range of products in February, seem to have buoyed the stock.

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Published on February 26, 2016
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