Slump in steel demand and the resultant fall in prices is set to eat into the margins of country's second largest private steel maker JSW Steel as it gears up to announce its third quarter results next month.
"Our margins will shrink in the third quarter mainly due to the free fall in steel prices and waning demand," JSW Group CFO Seshagiri Rao told PTI.
JSW Steel saw its net profit declining by about 51.18 per cent to Rs 257.50 crore in the second quarter of this fiscal, against the year-ago period.
The firm expects earnings before interest, tax, depreciation and amortisation (EBITDA) to fall in the December quarter, Rao said, refusing to divulge any figures.
However, the company sees steel prices stabilising and anticipates demand going up in the next quarter.
"Things are improving. Offtakes in December have been better as against November or October. Prices have bottomed. I see steel demand rising in January-March period," he said.
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Inventory position continues to be high at JSW Steel, with the company witnessing almost a month's stock piled up.
"Ideally, inventory should not be of more than two weeks, but at present we have stock piled up for about a month. It had touched alarming levels earlier," he added.
The company, which anticipates lower profit in the second consecutive quarter has not taken into account the impact of the pressure of high raw material cost under the long term agreements with the miners.
"Impact of high input pressure is still to be taken into account. Raw material cost under the long term agreement continued to rule high," he said.
Steel prices along with other commodities have fallen by more than 60 per cent to $550 a tonne due to slackening demand on account of the global economic downturn.