Steel company profit margins will be under pressure in the June quarter

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Steel companies expect their profit margins in the June quarter to be badly battered due to lower volume and prices falling faster than key commodities such as iron ore and coking coal.

Steel prices fell 16% to ₹63,800 per tonne this month from around ₹76,000 per tonne in April, while prices for iron ore chunks fell 10% to 5,500 ₹ per tonne (₹6,100) and coking coal prices fell 14% to $419 per tonne over the same period.

In fact, steel prices have fallen more than imports from China. Free on board prices for Chinese exports fell 15% to $776 per ton ($890).

To make matters worse, domestic demand has almost dried up, with the user industry postponing its purchase in anticipation of a further drop in steel prices.

In the space of 15 days, the government has already achieved its target of driving steel prices well below last June’s level of ₹67,000 crore and it is high time for export duties to be reviewed before steel companies slipped into the red, said a steelmaker. company manager.

Huge capital expenditure

Most steel companies have planned huge capital expenditures for capacity expansion and the negative outlook on the industry will have a cascading impact on their fundraising plans, he added.

In 2008, when a similar export duty was levied, it was canceled in one month on flat products and in five months on long products. However, the market dynamics are now completely different with the ongoing war between Russia and Ukraine which has reignited global inflation and economic concerns.

Kunal Motishaw, research analyst at Reliance Securities, said profit margins for steel companies are expected to be hit due to export duties, with SAIL potentially reporting triple-digit EBITDA per tonne. JSW Steel is the largest exporter of steel as it ships around 20% of its sales while Tata Steel exports 15% of its sales. JSPL, which has been shipping long products so far, plans to export special steel and expects exports to account for 30% or 2.5 tonnes of sales despite export duties, it said. -he adds.

Published on

June 06, 2022

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