Metals set to lose lustre in third quarter

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Mumbai: Lower steel prices, higher input costs and lower volumes due to lower demand in the third quarter of FY 2008-09 will keep the profitability of the Indian steel companies under pressure, say experts.

Except for Tata Steel, other players like JSW Steel (7.8%), SAIL (11.4%), Hindalco (11.8%) and Hindusthan Zinc (47.8%) are expected to report a de-growth in their net profit, said a report from Angel Broking.

Declining to share specific figures, Anil Surekha, executive director-finance, Ispat Industries Ltd told FE, “The dip in prices and fall of about 50% demand during the third quarter will certainly impact the topline and bottomline of the steel industry.”

The steel prices after peaking in July-August 2008, declined by more than 50% thereon. Overall slowdown in the global economy and liquidity crunch impacted end user sectors like real estate, construction and automobiles globally. As a result, demand for steel declined sharply and consequently the steel prices crashed in the last couple of months.

Said Tarang Bhanushali, analyst with India Infoline, “The sector, on the whole, is expected to witness a 50% drop on an average in its net profit whereas the top-line is expected to dip by 35% in the third quarter this financial year.”

Experts believe base metal players like Hindalco, Nalco and Hindustan Zinc are also expected to witness de-growth in topline owing to the sharp fall in LME prices. Their margins are also expected to decline sharply following the slump in volumes and LME prices.

Base metal prices have also collapsed by more than 50% in the last couple of months owing to the global financial crisis.

Notably the LME- aluminium, copper, zinc and lead prices have corrected by 56%, 68%, 63% and 75% from their peak, respectively.

According to Pawan Burde, an analyst with Angel broking, “On the Indian bourses, JSW Steel, Tata Steel, Hindalco, Nalco and Hindustan Zinc were major underperformers. Steel stocks underperformed despite some positive measures announced by the government including removal of export tax, restoration of export benefits and reduction in the iron ore export duty. The recent stimulus package by the government also failed to cheer the Steel stocks.”

Moreover, base metal stocks also slipped on the back of the sharp correction in the LME metal prices owing to the slowdown in demand globally and inventory build up at the LME.