The management at SAIL is decidedly pessimistic about the near future; realisations, it says, are going to be under pressure. Already, India’s biggest steel maker has reduced prices of both long and flat products in October and therefore, there’s no way realisations in the December quarter can be better than they have been in the June 2008 quarter.
Meanwhile, despite fairly good realisations in the September quarter, SAIL’s operating profit margins were dented by over 300 basis points to 21.3 per cent thanks to an amount of Rs 570 crore being set aside for wages. Adjusting for this, the margins would have been higher at close to 26 per cent.
In the June quarter too, the steel-maker’s operating margins were down 450 basis points to 25 per cent since it had to set aside a higher sum for wages, freight and ferro-alloys. While SAIL is self sufficient in iron ore, it buys coal which it then converts into coke. The company renewed some long term contracts for coal earlier this year when prices were higher than they are now. As a result, operating margins could be impacted in the coming quarters.
Currently, India imports some amount of steel from China and the CIS, which could keep prices in check or even cause them to come off slightly. Prices of steel in the international market, which are higher than prices in the home market, have been coming off and are now in the range of $800. Recently, Arcelor Mittal, the world’s largest steel producer, said it was prepared to scale back output by up to 15 per cent in a bid to ensure that supply remains in line with weaker demand.