Though companies are expected to report volume growth in the December quarter, margins will remain under strain
A fall in supplies, mainly due to the closure of Ispat Industries’ 3.3-million-tonne-per-annum plant in November, provided cushion. However, companies did resort to a price increase of Rs 500 a tonne in December. Raw material prices continued their northward journey. Coal contract prices, at $220-230 a tonne during the quarter, were higher than the $200 a tonne in the first quarter of the financial year. Spot prices of iron ore surged from $145 to $175 a tonne during the period.
For the quarter ended December 2010, Angel Broking expects steel companies to register sales volume growth of 4-14 per cent year-on-year. Going ahead, the demand for scrap from South East Asia and Europe is expected to stay strong. Analysts at Motilal Oswal say global steel prices will see an upside in the near term and producers may pass on the rise to consumers if demand sustains. Edelweiss Research expects prices to increase by $75-100 a tonne over November levels and margins to expand by $40-50 a tonne in 2011-12.
However, due to relatively higher raw-material costs, margins are likely to contract 440-940 basis points year-on-year in the recently concluded quarter, except for Tata Steel, which is expected to report a 166-basis-point margin expansion, according to Angel Broking. For Sesa Goa, the top line is expected to dip marginally on account of lower iron ore sales.
Overall, volumes are expected to increase 11 per cent year-on-year to 6.6 million tonnes (up five per cent sequentially). With demand gradually picking up, analysts expect JSW Steel to witness sales volume growth of 12 per cent year-on-year at 1.6 million tonnes in the December quarter. SAIL may witness growth of 14 per cent at 3.3 million tonnes, while Tata Steel’s volumes may rise five per cent to 1.7 million tonnes, reckon analysts.