Steel Cos Gear For Growth

Steel Cos gear for growth

Tata Steel, JSW Steel, Steel Authority of India (SAIL), Jindal Steel & Power, other steelmakers are gearing for growth in demand even as the macroeconomic conditions continue to suggest otherwise.

What makes steel companies to stay upbeat is a matter of deliberation, but, obviously, there’s optimism in the air that has promoted them to raise prices.

In a move to address margin compression and in anticipation of demand pick-up, domestic primary steel producers have raised product prices for the second straight month.

They have hiked prices by 2.5-3% for December.

In November steel product prices raised between Rs 500 a tonne and Rs 1,000 a tonne, after a gap of about six months.
Interestingly, the price hike fails to recognize weak undertone. Demand user segments ie infrastructure, automobile, construction continues to be weak.

Although a spurt in October sales provided a breather for the automobile sector, that proved to be short-lived.

This fact is well reflected in industry data.

The index of eight core infrastructure industries contracted 5.8% for October 2019, which was its lowest level since the construction of the index with 2011-12 as the base year.

Among the eight segments, the steel industry witnessed a 1.6% fall in October, worse than a 1.5% drop in September.

In October last year, the steel industry had witnessed a 2.4% growth.

On the positive side, there’s a pickup in exports.

According to the Joint Plant Committee data, India’s steel exports during April-September this year rose 22% on-year to almost 4 million tonnes.

Higher inventories with the stockiest and SME segment does not augurs well for the sector that witnessed two big businesses being referred to the bankruptcy court (Bhushan Steel being acquired by Tata Steel while Supreme Court upheld ArcelorMittal’s bid for Essar Steel).

The apex courts decision seems to have turned the tide in favour of the beleaguered sector which has been pining hope on the government’s infrastructure spending.

India not joining the Regional Comprehensive Economic Partnership (RCEP) has been welcomed by the domestic steel industry.

In view of huge steel capacity available with China, the Indian Steel sector could have faced a threat from cheap Chinese steel imports.

Under the RCEP, such imports would have got the advantage of preferential tariff and harmed the Indian Steel Industry.

The steel industry’s net leverage and interest coverage is expected to deteriorate in FY20 due to compressed operating margins, drop-in realizations in the face of a demand slowdown and increase in raw material prices in FY20 on a yearly basis, according to India Ratings and Research (Ind-Ra).

However, operating levels are likely to improve by Rs 1,500 per tonne in the current quarter (Q3FY20) due to marginal improvement in realizations.

Meanwhile, steel producers have sealed half-yearly contracts for the auto segment factoring in the recent fall in steel prices.

JSW Steel, Essar Steel, and Tata Steel are into flat products used in the auto sector, while state-owned SAIL and Jindal Steel & Power cater for the construction and infrastructure segment that uses long steel products.

Hence we expect hopefully better numbers operationally in the coming six to 12 months going ahead

Disclaimer –
This document is meant for the recipient only for use as intended and not for circulation. This document should not be reproduced or copied or made available to others. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such. Also above note is not a recommendation to Buy or SELL and is only a view based on facts and figures and we will be in no way responsible for any losses incurred by anyone who uses this information to either trade or invests securities mentioned herein.