Steel companies’ Q1 margins hit by rising costs, low prices – ET Infra

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NEW DELHI: The operating profit of steelmakers is estimated to have dipped by Rs 2,000-3,000 per tonne of metal sold during the April-June period compared to the preceding quarter, experts said.

Steel prices and sales volume during the quarter dipped sequentially while input costs continued a northward march, resulting in lower profitability, they said.

“We expect the tug of war between the slowdown in the West and Chinese recovery expectations to continue to weigh on Indian metal equities,” analysts at Kotak Institutional Equities said in a pre-earnings note.

Steel prices have fallen steadily through the quarter with the prices of benchmark hot-rolled coils (HRC) of steel a little above Rs 55,000 per tonne at the end of June, as compared to around Rs 60,000 at the end of March. The average price of HRC for the June quarter – at around Rs 57,655 – is around 3% lower sequentially, and 17% lower on year.

Meanwhile, local prices of iron ore, a key input, have risen around 4% sequentially. This rise in prices is expected to impact players such as JSW Steel and Jindal Steel and Power relatively more as they have higher dependence on the open market for procuring iron ore. JSW Steel gets about 50% of its iron ore from captive mines while Jindal Steel gets about 40-50%, analysts said. Captive sourcing of iron ore is significantly higher for Steel Authority of India (SAIL) and Tata Steel.

Prices of coking coal, another key input, came down by a third during the quarter. However, steelmakers are unlikely to get the complete benefits because of a consumption lag. Steel producers are still using high-cost inventory of coal, because of which the effective cost of coal for the quarter is up by around $10-$20 per tonne sequentially, Edelweiss Securities said.

The brokerage estimates steel volumes to be 6-19% lower quarter-on-quarter.

While steel prices have been lower through the quarter, an improvement in product mix and some contracts being negotiated at higher rates will help limit a decline in realisations for steelmakers to around Rs 1,250 per tonne, Kotak Equities said.

Shares of major steel producers – Tata Steel, JSW Steel, Jindal Steel and Power and Steel Authority of India – have risen 3-14% in the June quarter largely on expectation of earnings, particularly profitability, improving from the September quarter onwards, helped by lower costs.

  • Published On Jul 7, 2023 at 10:45 AM IST

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