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Domestic steel producers brace for profitability boost
Steel

Domestic steel producers brace for profitability boost

Analysts predict that most domestic steel manufacturers will experience a boost in profitability in the quarter ending September, ranging from Rs 500 to Rs 2,000 per tonne. This improvement is primarily attributed to the decreased cost of a crucial raw material—coking coal—which has fallen by $45-$60 per tonne from the previous quarter. Although steel prices have declined during this seasonally weak period, companies are utilising their lower-priced inventory to mitigate costs.

However, the increase in profitability for steel producers is limited due to a 3-5% decrease in steel prices throughout the quarter. Long steel products have experienced an even sharper decline, dropping by up to 8%. Steel prices began weakening in April, hitting their lowest point in August due to the monsoon season in India and sluggish activity in the Chinese property market. Although prices have risen since then, the average prices for the quarter remained lower than those in the June quarter.

In an earnings preview, Nuvama Institutional Equities noted an anticipated ₹1,661 decline in JSPL's (Jindal Steel and Power) Ebitda/t (earnings before interest, taxes, depreciation, and amortisation per tonne) quarter-on-quarter due to a significant fall in long steel prices and reduced availability of iron ore from its captive mine. Conversely, state-owned Steel Authority of India (SAIL) is expected to achieve strong performance, driven by robust sales growth and lower coking coal costs. Analysts estimate a sequential sales volume growth of around 15% for the company.

While JSW Steel and Tata Steel saw slightly lower production volumes sequentially, they still remained substantially higher than the previous year. In addition to financial and operational metrics, market attention will be on the statements made by steel producers when they report their earnings for the September quarter. Analysts highlight the importance of focusing on domestic demand and inventory, steel prices and spread guidance, as well as updates on capital expenditures and expansion plans, according to a note from CLSA Asia Pacific Markets.

Analysts predict that most domestic steel manufacturers will experience a boost in profitability in the quarter ending September, ranging from Rs 500 to Rs 2,000 per tonne. This improvement is primarily attributed to the decreased cost of a crucial raw material—coking coal—which has fallen by $45-$60 per tonne from the previous quarter. Although steel prices have declined during this seasonally weak period, companies are utilising their lower-priced inventory to mitigate costs.However, the increase in profitability for steel producers is limited due to a 3-5% decrease in steel prices throughout the quarter. Long steel products have experienced an even sharper decline, dropping by up to 8%. Steel prices began weakening in April, hitting their lowest point in August due to the monsoon season in India and sluggish activity in the Chinese property market. Although prices have risen since then, the average prices for the quarter remained lower than those in the June quarter.In an earnings preview, Nuvama Institutional Equities noted an anticipated ₹1,661 decline in JSPL's (Jindal Steel and Power) Ebitda/t (earnings before interest, taxes, depreciation, and amortisation per tonne) quarter-on-quarter due to a significant fall in long steel prices and reduced availability of iron ore from its captive mine. Conversely, state-owned Steel Authority of India (SAIL) is expected to achieve strong performance, driven by robust sales growth and lower coking coal costs. Analysts estimate a sequential sales volume growth of around 15% for the company.While JSW Steel and Tata Steel saw slightly lower production volumes sequentially, they still remained substantially higher than the previous year. In addition to financial and operational metrics, market attention will be on the statements made by steel producers when they report their earnings for the September quarter. Analysts highlight the importance of focusing on domestic demand and inventory, steel prices and spread guidance, as well as updates on capital expenditures and expansion plans, according to a note from CLSA Asia Pacific Markets.

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