Pricing challenges likely to persist for steelmakers in Q3

Market


NEW DELHI : Indian steelmakers posted weak numbers in the September quarter as high inventory costs and declining steel prices led to significant pressure on profits, according to data compiled by Mint.

Earnings before interest, taxes, depreciation and amortization (Ebitda) of leading steelmakers such as Tata Steel, JSW Steel, Jindal Steel and Power, and Steel Authority of India (SAIL) fell 49-68%, sequentially, and 58-90% from the year earlier.

According to data, while the net sales of steel companies rose 7.9%, operating profit declined 69%, and net profit plunged 96% in the September quarter from a year earlier.

However, manufacturers are likely to get some respite on raw material prices in the second half of FY23. The benefit of declining raw material prices will start accruing after a lag. Demand may also pick up, analysts said. However, a recovery in steel prices remains a concern, they added. Steel price has been declining since the imposition of an export duty in May. In the September quarter, average domestic prices of flat and long steel fell 17% and 4% sequentially, respectively, analysts said. “We stick to our domestic steel demand growth expectation of around 7% year-on-year during FY23, which was given at the start of the year,” said Jayanta Roy, senior vice president and group head of Icra Ltd. Roy said steel demand will depend on the government’s capex plans. However, steel price movement in the domestic market primarily depends on international steel prices.

According to analysts, domestic steel prices are close to import-parity prices and may not go up significantly. The natural hedge against cheap exports was being provided to some extent by a weak rupee and a stronger dollar. However, with the rupee appreciating in the past few days, the risk of cheap imports increases, and the industry must be cautious about it, analysts said.

Primary steel mills have retained the price of HRC (hot rolled coil) and CRC (cold rolled coil) in November from a month ago. The HRC and CRC price list remained unchanged at 58,000 and 66,000 per tonne, respectively.

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