SAIL feels downturn jitters, net down 28%

Written by fe Bureau | New Delhi | Updated: Aug 1 2009, 03:27am hrs
The countrys largest domestic steel producer, state-owned Steel Authority of India Ltd (SAIL), on Thursday reported a 27.74% decline in its net profit at Rs 1,326 crore for the quarter ended June 30, 2009. Hit by the global decline in the automotive and construction sectors, the two main demand drivers of steel, revenue dipped by 16.5% at Rs 8,950 crore during the quarter.

SAILs results reinforce the global slowdown, which has affected the local and global steel firms. So far, the worlds top two steel makers, ArcelorMittal and Japan-based Nippon Steel, have posted quarterly losses. Indias Tata Steel, which combined with Corus is the world's sixth largest steel producer, posted a 47% drop in its net profit from the Indian operations. While Nippon Steel estimated a worse-than-expected loss in the six months to September, ArcelorMittal projected a slow pick-up over the rest of 2009.

The state run steel producer also announced that it was planning to borrow Rs 4,000 to Rs 5,000 crore this year for capital expenditure. SAIL chairman SK Roongta said that additional equity was also on the cards as a financing option.

The steel industry, recognised as a broad gauge of an economy's strength, has globally seen demand tumble, driven by the weakness in key automotive and construction sectors. We must reckon the fact that even now globally capacity utilisation is quite low. As the demand picks up, there is enough capacity, Roongta said.

Clarifying that despite increase in input costs (mainly on account of a 49% increase in the prices of coal) and decline in the demand, the company was under no pressure to reduce prices. However, appearing optimistic on the domestic demand of steel, Roongta said, The overall demand scenario in India is encouraging, there is an upward bias for increasing flat product prices and downward bias on the long products.

SAIL plants during the quarter operated at an overall capacity utilisation of 111%. With continued thrust on production of value-added and special steels, the major SAIL plants produced 1.15 million tonne of these items during Q1, a growth of 21%.

Roongta, however, added that the company might take a decision on prices in a day or two. In July, the company had cut prices of long products, used mainly by construction firms, by up to Rs 2,000 a tonne. SAIL had also rolled back the Rs 500-750-a-tonne rebate offered to dealers for flat products.