Fears of a slowdown in the Chinese economy in the second quarter, and steep tariffs imposed by the United States on steel imports having an indirect impact on the domestic steel market spooked the investors on Monday, leading to a sharp fall in the share prices of steel companies.
The fall was led by Tata Steel shares, which slumped 7.5% during intra-day trade and settled 6.96% lower at Rs 519.30 a piece, on Bombay Stock Exchange. The share prices of other steel companies — Steel Authority of India (SAIL) and JSW Steel — also fell intra-day and closed down 4.89% at Rs 71.05 and nearly 3% at Rs 307.45 respectively. Tata Steel pulled down the BSE Metal Index as well, which closed 461.08 points down (3.7%) at Rs 12009.82 contributed by 175.78 points from Tata Steel.
With the Indian steel exports to the US being 3.3% of the overall exports, the steel companies as well as the government had maintained that the heavy tariff imposition of 25% by US president Donald Trump on steel imports will not impact domestic steel industry. However, on Friday, union steel minister Chaudhary Birender Singh said in a conference in New Delhi that there might be an indirect impact on the Indian steel market.
According to a PTI report, Singh said that countries exporting to the US would be forced to look at other major steel consuming markets like India to sell their surplus (produce) which can distort the domestic market due to dumping.
However, analysts have maintained that higher steel prices will aid the earnings of Indian steel companies, which are expected to report strong numbers for the three months of April-June 2018. Tata Steel’s group EBITDA is expected to be about Rs 7,200 crore ($1.05 bln), a rise of 11% compared with the previous quarter, Reuters quoted a Jeffries report.
SAIL is expected to show quarter-on-quarter EBITDA growth of 2%, while volumes are seen falling 12% q-o-q, and input costs rising due to higher coking coal costs, foreign brokerage is quoted.
On a year-on-year basis too, the earnings are expected to remain strong. Led by higher steel prices, analysts at Kotak Institutional Equities expect steel companies to report 43-90% year-on-year (-6 to 10% quarter-on-quarter) increase in EBITDA (earnings before interest, tax, depreciation and amortisation). Tata Steel’s India business, for instance, is expected to report EBITDA per tonne increase by Rs 2,000/tonne to Rs 17,900, which is 66% up y-o-y.
Meanwhile, JSW Steel is expected to report a y-o-y increase of 90% in the EBITDA to Rs 4,980 crore during Q1FY19 and Jindal Steel and Power a rise of 65% y-o-y to Rs 2,230 crore, analysts at KIE observed. However, according to Jeffries the focus will remain on the outlook, with domestic steel prices down 3%-10% led by a lull in seasonal demand. The brokerage has also warned regional prices/spreads could be moderate as Chinese output remains high, and demand may recede after a seasonally strong period, Reuters reported.