News Analysis

JSW Steel: Realisation down 21% on higher exports, weak demand for superior products

Satya Sontanam BL Research Bureau | Updated on July 24, 2020 Published on July 24, 2020

JSW Steel had scaled down and suspended operations since March to contain spread of Covid   -  Getty Images/iStockphoto

Lower production, weak domestic demand and poor realisations exerted pressure on JSW Steel’s profit for the first quarter ended June 30, 2020. The company reported a net loss of ₹582 crore for Q1 FY21 against profit of ₹1,008 crore a year ago.

Higher exports share

In the June quarter, JSW Steel functioned at an average capacity utilisation of about 66 per cent (average utilisation level of 89 per cent in FY20) and produced 2.96 million tonnes (mt) of crude steel, lower by 30 per cent y-o-y.

As the domestic demand for the metal in the June quarter was hugely impacted, JSW Steel enhanced exports to liquidate the inventory. Out of 2.79 mt of sales in Q1 FY21 (down 25 per cent Y-o-Y), export sales accounted for 53 per cent. Generally, JSW Steel’s share of exports in the total sales would be around 15-25 per cent. The strategy of increasing the exports share is, however, not unique to JSW Steel. The Indian steel exports rose to 5.54 mt in the June quarter as against 1.83 mt in the corresponding period a year ago.

Poor margins

The operating margins of JSW Steel on a consolidated basis stood at about 11.38 per cent in the June quarter (18.76 per cent in Q1 FY20). This is largely due to the lower realisation during the quarter.

For instance, the realisation per tonne of steel of the Indian operations stood at ₹36,671, lower by 21 per cent y-o-y. This could have been due to the higher volumes of export sales, for which the realisations are at discount compared to the realisations in Indian market.

Also, the product mix played the spoilsport. In Q1 FY21, the share of high margin, automotive steel’s share in the total sales fell by about 50 per cent to seven per cent of total sales when compared to a year ago. This is on the back of decline in passenger and commercial vehicle sales in the country.

Resultantly, the proportion of value added and special products sales (including automotive) in the overall sales mix lowered – from 49 per cent in Q1 FY20 to 38 per cent now.

Meanwhile, on the costs front, while there was a benefit on savings due to lower costs of iron ore – key raw material – costs, it was offset largely by higher coking coal prices during the quarter.

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Published on July 24, 2020
JSW Steel Ltd
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