Profitability of steel companies is likely to improve in January-March period following moderate hike in steel prices during the quarter while raw material costs remained at lower levels. Demand side concerns however remain a big worry.
An excise duty cut in the auto sector may translate into demand revival helping the steel sector witness better sales, experts said.
CS Verma chairman at Steel Authority of India (SAIL), told Financial Chronicle that they have increased steel prices of flat products by around Rs 1,500 per tonne.
“The Interim Budget has been positive for the sector owing to its thrust on growth. The lowering of duties on capital goods and automobiles will help to strengthen the demand for steel. This continued thrust on infrastructure and manufacturing development will help industrial growth in the long term,” he said.
According to Sharad Mahendra, vice-president, sales and marketing of JSW Steel, steel prices have gone up by around Rs 2,000 per tonne in January-March.
“It is expected to go up in the range of Rs 500-Rs 750 per tonne in March as well. Due to excise duty cut in the auto sector already there are signs of some improvement in sales,” he said.
A senior official from Essar Steel said other steel companies are also expected to undertake marginal price hike in March, as there are signs of improvement in Q4 demand. Essar Steel hiked rates in January-February by around Rs 2,000 per tonne.
In January and February, steel prices across the country have gone up while coking coal prices for the quarter declined by around $10 sequentially. Iron ore prices too remained stable in the quarter. Further a reduction in the excise duty across vehicles in the interim budget is helping steel companies to witness improvement in demand, experts said.
Analysts said that the fourth quarter should be better compared with the last three quarters, as seasonally this is the peak period and steel companies have managed to raise prices.
Bhavesh Chauhan, an analyst at Angel Broking said that all the companies including SAIL, Tata Steel, Jsw Steel and Essar Steel, among others, have increased prices in the last two months.
Chauhan said the margins of steel companies were under pressure in the last three quarters, as they could not increase prices in line with rising raw material costs. The fourth quarter being the peak season for the steel firms they have managed to hike prices moderately while raw material prices have remained low. This should help the companies to report improvement in margins.
Sanjay Jain, an analyst at Motilal Oswal said, “We expect the steel companies to perform better in the quarter as this is the peak season. Further demand from the auto sector is also expected to improve on back of improvement in demand in the sector.”
According to Icra, the near-term outlook on the profitability of Indian steel players has improved, given the soft price trends of key raw materials. The steel industry being highly raw material intensive, Icra expects the near term benefits from lower raw material costs to more than neutralise the adverse impact of a low volume growth, even if a part of the benefits of lower costs are passed on to customers to protect sales volumes.
Persistent weakness in demand from key end-user industries kept the domestic steel consumption growth at a meagre 0.5 per cent during April-December 2013. Icra, therefore, expects the domestic steel demand to grow at a slower pace in 2013-14 than the 3.3 per cent growth rate achieved in 2012-13, notwithstanding a typical pick-up in demand in the last quarter.
On the other hand, double digit production growth rates clocked by several large steel producers in April-December 2013, resulted in a domestic steel production growth of 5.2 per cent during the same period. The mismatch in domestic supply and demand necessitated higher steel exports, which also benefited from favourable exchange rate conditions. This led to an export growth of 9.5 per cent, while steel imports crashed by 29.2 per cent during the period.
An excise duty cut in the auto sector may translate into demand revival helping the steel sector witness better sales, experts said.
CS Verma chairman at Steel Authority of India (SAIL), told Financial Chronicle that they have increased steel prices of flat products by around Rs 1,500 per tonne.
“The Interim Budget has been positive for the sector owing to its thrust on growth. The lowering of duties on capital goods and automobiles will help to strengthen the demand for steel. This continued thrust on infrastructure and manufacturing development will help industrial growth in the long term,” he said.
According to Sharad Mahendra, vice-president, sales and marketing of JSW Steel, steel prices have gone up by around Rs 2,000 per tonne in January-March.
“It is expected to go up in the range of Rs 500-Rs 750 per tonne in March as well. Due to excise duty cut in the auto sector already there are signs of some improvement in sales,” he said.
A senior official from Essar Steel said other steel companies are also expected to undertake marginal price hike in March, as there are signs of improvement in Q4 demand. Essar Steel hiked rates in January-February by around Rs 2,000 per tonne.
In January and February, steel prices across the country have gone up while coking coal prices for the quarter declined by around $10 sequentially. Iron ore prices too remained stable in the quarter. Further a reduction in the excise duty across vehicles in the interim budget is helping steel companies to witness improvement in demand, experts said.
Analysts said that the fourth quarter should be better compared with the last three quarters, as seasonally this is the peak period and steel companies have managed to raise prices.
Bhavesh Chauhan, an analyst at Angel Broking said that all the companies including SAIL, Tata Steel, Jsw Steel and Essar Steel, among others, have increased prices in the last two months.
Chauhan said the margins of steel companies were under pressure in the last three quarters, as they could not increase prices in line with rising raw material costs. The fourth quarter being the peak season for the steel firms they have managed to hike prices moderately while raw material prices have remained low. This should help the companies to report improvement in margins.
Sanjay Jain, an analyst at Motilal Oswal said, “We expect the steel companies to perform better in the quarter as this is the peak season. Further demand from the auto sector is also expected to improve on back of improvement in demand in the sector.”
According to Icra, the near-term outlook on the profitability of Indian steel players has improved, given the soft price trends of key raw materials. The steel industry being highly raw material intensive, Icra expects the near term benefits from lower raw material costs to more than neutralise the adverse impact of a low volume growth, even if a part of the benefits of lower costs are passed on to customers to protect sales volumes.
Persistent weakness in demand from key end-user industries kept the domestic steel consumption growth at a meagre 0.5 per cent during April-December 2013. Icra, therefore, expects the domestic steel demand to grow at a slower pace in 2013-14 than the 3.3 per cent growth rate achieved in 2012-13, notwithstanding a typical pick-up in demand in the last quarter.
On the other hand, double digit production growth rates clocked by several large steel producers in April-December 2013, resulted in a domestic steel production growth of 5.2 per cent during the same period. The mismatch in domestic supply and demand necessitated higher steel exports, which also benefited from favourable exchange rate conditions. This led to an export growth of 9.5 per cent, while steel imports crashed by 29.2 per cent during the period.
