Top steelmakers to report record earnings in Q3 FY21
“We expect the steel sector to stage a splendid turnaround on the back of a price uptick,” said Edelweiss Vice President, Amit Dixit in a sector report on Tuesday. “And the operating profit per tonne for ferrous is likely to be near the peak of the previous cycles in the past 15 years.”
Analysts expect steel companies as pick of the pack with Ebitda growth of around 152% year-on-year on an average. Prices rose by an average Rs 7,300/tonne to Rs 49,000 – Rs 52,000 per tonne in Q3.
Steelmaker JSW Steel said that a shortage of steel in the country combined with a pick-up in infra and auto demand is resulting in reduction of inventories for steel players.
“Overall, there is a shortage of steel, not only in India but globally. Supply has not gone in line with the recovery. Last year in October the consumption was around 8 million tonne this year it is 8.6 November also witnessed a growth. Supply did not go up in a similar way,” said JSW Steel’s joint managing director, Seshagiri Rao.
Most user industries exhausted their inventory and there is big restocking that happened in Q3. Cost pressures pushed up the steel prices and this will result in a better December quarter for steel companies, he added.
JSW Steel is witnessing demand from infra, commercial vehicles, electrical goods and solar segments. The company’s average capacity utilisation improved from 86% in Q2 to to 91% in the Q3 of FY 21 and it reported an Ebitda per tonne of Rs 10,141.
“Iron ore shortage continued to persist in Odisha, which has led to lower steel production for some non-integrated players such as JSW Steel,” said a report by IDBI Capital on Friday. It expects JSW Steel’s Ebitda to go up by 146.3% YoY.
Yet another top steelmaker, Tata Steel, reported an Ebitda per tonne at Rs 13,127 in Q2 and it expects to see a revival in Q3 and Q4.
“We are very bullish on demand for Q3 and Q4 as we see the steel sector is reviving and it is also traditionally a good quarter for steel,” said Tata Steel’s managing director T.V. Narendran.
IDBI Capital expects Tata Steel’s Ebitda to go up 136% yoy.
While JSPL reported an Ebitda per tonne of Rs 12,600 and state-owned Steel Authority of India’s Ebitda per tonne was around Rs 4,158 in Q2. It is likely to go up by 76% and 323.7% yoy, respectively, in Q3.
“In Q3FY21 we did 35 lakh tonnes of sales and 35 lakh tonnes of production in H1. We are targeting 40 lakh tonnes of sales and 40 lakh tonnes of production in H2 which will amount to 7.5 million tonnes of sales & production in FY2021”, said V R Sharma, Managing Director, JSPL
As per analysts, the record high profit estimates can be attributed to the steady price hikes taken by the large Indian steel players since September of FY 21 due to international price hikes and an increase in iron ore prices.
In Q3, steel players undertook around five price increases and at the end of December, HRC prices were quoting at Rs 52,000 per tonne to Rs 58,000 per tonne.
As of Friday, domestic HRC prices rose further by Rs 2,750/t (5%) compared with previous week as major producers calibrated their notified prices with wholesale ones, said a report by Edelweiss.
“Steel price hikes will not affect some of the infra projects and auto contracts booked earlier,” said Ranjan Dhar, chief marketing officer, ArcelorMittal Nippon Steel India.
To be sure, iron ore prices went up sharply, while yet another raw material, coking coal, became cheaper by Rs7,300 per tonne as per Ind-Ra’s report last week.
“Companies using the blast furnace route are likely to have reduced cost of steel production by around Rs 1,800/tonne yoy in 2H FY21, supported by the reduced cost of coking coal per tonne of around Rs 7,300,” the report said.