Metals: The sheen is showing

Higher product prices to prop up June quarter numbers.

Integrated steel companies such as Tata Steel and Steel Authority of India (SAIL) are expected to report an improved performance in the June 2007 quarter as steel product prices are about 8-10 per cent higher on a y-o-y basis, point out analysts.

For instance, in the June 2006 quarter, Tata Steel's realisations were at Rs 35,117 a tonne levels. No doubt, prices of key inputs like coking coal are lower on a y-o-y basis in Q1 FY08, but the near 7 per cent appreciation of the rupee in the last quarter q-o-q, could put pressure on export realisations for these large players.

Nevertheless, Tata Steel on a standalone basis (excluding Corus) is expected to grow its net sales by 16 per cent y-o-y in the last quarter, while operating profit could grow by over 20 per cent. SAIL is also expected to grow its operating profit margin by 150-200 basis points y-o-y in Q1 FY08.

However, the operating environment for non-ferrous players has been difficult in the last quarter "" spot alumina price realisations had dipped 38 per cent y-o-y in the last quarter, while average aluminium prices rose merely 4 per cent to $2,804 a tonne in the last quarter, point out analysts.

As a result, Nalco is expected to see its operating profit decline by 15-17 per cent y-o-y along with a 9-10 per cent fall in net sales in the June 2007 quarter, say analysts.

In addition, non-ferrous players such as Hindalco (excluding Novelis) are also expected to be hit by weak treatment and refining charges in their copper divisions on a y-o-y basis in the last quarter.

As a result, Hindalco is expected to see its operating margin decline by 100 basis points y-o-y in the last quarter. SAIL trades at 8 times estimated FY08 earnings, while Nalco gets a discounting of 9.5 times.