Demand for steel in the Indian market remains healthy with a revival in the automobile sector and increased activity in the infrastructure space. Industrial production in the country has rebounded to 9-10% levels and, as in other Asian economies, the government continues with its stimulus package. As brokerage UBS points out, consumption of steel between April and October 2009 has increased by 8%, compared with 2% in the same period last year.
Steel prices have risen from the October 2009 levels and companies have raised prices further by about Rs 1,500 per tonne for flat products in early January. Indeed, as brokerage Edelweiss points out, prices of flat products have been rising since October, though on a sequential basis, prices of long products have fallen. Price hikes between Rs 500 and Rs 2,000 per tonne were announced in mid-December.
Companies have seen volumes fall sequentially in the December 2009 quarter, though compared with the corresponding quarter of 2008, volumes would certainly grow. And, therefore, their top lines, too, are expected to report a year-on-year (y-o-y) growth somewhere in the region of 20-25%.
So, while sales for Sail, Tata Steel and JSW Steel are expected to decline sequentially by just over 10%, they are estimated to increase by approximately 25-26%year-on-year.
According to analysts, Tata Steel?s revenues (stand-alone) are expected to rise by about 20% y-o-y, with volumes growing by about 35%. Net sales for JSW Steel are expected to post a robust growth of 40% plus y-o-y to approximately Rs 4,000 crore on the back of an over 60% growth in volumes. That?s despite average realisations coming off.
Sajjan Jindal, vice-chairman & MD, JSW Steel had indicated some time back that with the capacity expansion on track, the company was set to see a sharp acceleration in the pace of growth. However, at the state- run Sail, net sales are expected to fall by about 7% year-on-year due to lower prices and subdued volumes. Sail had taken price cuts for long products in October and November to align them with global steel prices and to compete with rising cheaper imports. Volumes are expected to grow by about 4% year-on-year.
The profitability of ferrous companies with low captive resources could be hurt by high iron-ore prices, say experts. On the non-ferrous front, base metal prices remained firm in the three months to December, thanks to China?s strong appetite and speculative buying.
?Higher non-ferrous metal prices, which have moved up by about 10-85% year-on-year, will offset the decline in sales volumes and as such, operating margins would be stable. However, the depreciating rupee, which has come off by 4.4% y-o-y, will partially negate the impact,? says brokerage IDFC-SSKI.
The average prices for copper, aluminium, alumina, zinc and lead on the London Metals Exchange rose by 69%, 9%, 10%, 85% and 82% respectively, on a yearly basis. Also, energy costs for aluminum smelters are expected to fall because of coal supply disruptions and moisture inflated costs in 2QFY10, point out industry watchers.