New Delhi: Steel Authority of India Ltd (SAIL) posted a 40% rise in quarterly profit, helped by lower input costs, but said it was concerned about rising prices of raw materials.
Steel sales have been rising at near double-digit rates in India, driven by demand from the infrastructure and automotive segments, pushing prices higher.
In April, the World Steel Association said global steel demand was growing faster and sooner than expected, driven primarily by China.
Higher steel prices in the first two months of the current quarter to June augured well for the state-run firm’s financials, chairman SK Roongta said at a news conference after the results, but rising costs could hit profit.
“Prices have improved. In April and May prices were much better than what they were in the previous quarters (but) also there is pressure on costs,” he said.
SAIL, with annual capacity of about 15 million tonnes, is the largest producer in India but lags Tata Steel’s capacity of 30 million tonnes, mostly from its Corus unit in Europe.
A recent global trend of locking in coal prices for the shorter term, instead of a 40-year-old system of annual price deals, also has a bearing for SAIL, Roongta said.
SAIL has finalized its coal contract for April-June at $200 per tonne, compared with $128 last year, and will have to renegotiate it for the July-September quarter.
Steel makers have struggled to manage costs after global miners in April scrapped the system of fixed annual pricing for iron ore and coal, in favour of quarterly contracts.
SAIL is self-sufficient in iron ore, the other key raw material for steel, but imports most of its coal.
Net profit rises
SAIL said net profit rose to Rs2,085 crore ($967 million) for its fiscal fourth-quarter ended March, compared with Rs1,485 crore a year ago. Net sales rose to Rs12,230 crore from Rs11,986 crore.
A Reuters poll of 12 analysts had estimated net profit of Rs2,080 crore on sales of Rs11,680.
It said higher sale of value-added products and lower input costs helped boost profit during the quarter.
SAIL plans to spend Rs12,000 crore during the current fiscal year to March 2011 to expand capacity, and may borrow about Rs6,000 crore to part-fund expansion.
The company is in talks with South Korea’s POSCO to set up a 1.5 million tonne steel plant near SAIL’s existing facility at Bokaro in eastern India.
Media reports have indicated that POSCO will take a 51% stake in the JV, and will transfer advanced technology to the venture.
Roongta said discussions were ongoing, but there was no deadline, adding that the company had also begun “very preliminary” talks with Tata Steel and Arcelor Mittal for similar joint ventures.
Shares in SAIL, which has a market value of $17.4 billion, closed 3.5% higher at Rs205.55 on a firm Mumbai bourse. The stock has lost nearly 15% so far in 2010, underperforming a 3.5% fall in the main index.