Driven by higher sales, lower inventories and renegotiation of raw material contracts by some companies, the steel industry was poised for a better performance in the fourth quarter (January-March) than the previous one of the current financial year.
After a significant production cut by most of the companies in the October-December quarter, they reverted to normal output from January following a surge in demand. Also, a focus on the domestic market, which was insulated from the global crisis to some extent, helped in recording better sales.
Industry representatives said that sales since January had picked up, month-on-month.
Moreover, some of the companies were able to renegotiate existing raw material contracts, which would result in better margins over the third quarter.
According to Pawan Burde, an analyst with Angel Broking, “Even though prices were higher in the fourth quarter of last year, there was a volume problem. So revenues may be higher in some cases, but margins will be under pressure. JSW Steel and Tata Steel have, however, renegotiated contracts. So, their performance quarter-on-quarter would be better,” said Burde.
On a standalone basis, Tata Steel has 100 per cent iron ore security and around 60 per cent coking coal security.
JSW has renegotiated its existing coking coal contract with Rio Tinto, which is 43 per cent lower than the contract sealed last year, when coking coal contract prices increased 200 per cent to $305 a tonne. JSW imports 100 per cent of its coking coal requirements.
Among the other major and primary steel producers, Steel Authority of India (SAIL) may not register a growth in top line or bottom line in the fourth quarter, year-on-year, but for the full year, both the numbers would be higher as the first six months were robust, said trade sources.
Also, SAIL’s sales in February were much better than January, and March also indicates that there was demand growth. For cold rolled steel producers such as Bhushan Steel, volumes and profitability would be better over the previous quarter, while year-on-year it would be at the same level as last year. Neeraj Singal, managing director, Bhushan Steel, said that hot rolled coil last year was at $1,000-$1,200 a tonne, while it was currently hovering around $420 a tonne.
On the back of additional capacities going onstream for some of the primary producers, revenues are likely to be at the same level as last year despite a drastic drop in prices.
Prices of hot rolled coil during January-March 2008, were at 40,000-41,000 a tonne, compared to Rs 31,000-32,000 a tonne in January-March 2009. However, for some companies that have been able to renegotiate raw material contracts, there would be some relief on margins.
