New Delhi: Steel Authority of India Ltd (SAIL), the country’s largest steel producer, on Thursday warned rising raw material prices were taking toll on margins and may force further increases in product prices.
The state-run firm, due to launch an upto $1.8 billion share sale next month, joined other steelmakers who have seen soaring costs of key raw materials such as iron ore and coking coal bite into margins, despite higher prices and volumes.
“On the one hand is slowly firming up demand leading to record sales, while on the other, a sharp hike in cost of inputs has exerted substantial pressure on margins,” the company said in a statement.
Steel mills in Asia are bracing up for cost increases following floods at Australian coal mines, forcing them to scour for new suppliers, and coking coal prices are expected to rise a fifth to $300 a tonne, the highest in nearly two-year.
SAIL, which imports 75% of its coking coal requirement -- of which a significant portion from Australia, said though there was no immediate impact, it would take precautions.
SAIL had raised prices this month by around 3%, and its head did not rule out further increases.
“The increase in steel prices is not because of demand factor. It is because input prices are going up,” chairman C.S. Verma told reporters.
The $500 billion global steel industry is facing headwinds with slowing demand from top consumer China, soaring input costs after miners last year switched to a more frequent quarterly pricing system, and coking coal supply disruptions due to floods in Australia since last month.
Earlier on Thursday, Posco, the world’s No.3 steelmaker, posted a weaker-than-expected quarterly profit and warned it was struggling to pass on rising costs.
Share sale in February
SAIL will file for regulatory approval of its share sale this month and plans to launch the follow-on offer in the second week of February, Verma said.
SAIL’s follow-on public offer involves the government selling a 5% stake and the steelmaker issuing an equal amount of new shares.
The share issue is part of the government’s plan to raise $8.5 billion from share sales in 2010-11 to cut its fiscal deficit, under a broader programme to divest stakes in roughly 60 companies over the next few years.
SAIL, with annual capacity of about 15 million tonnes, is the largest steel producer in India, but lags Tata Steel’s capacity of 30 million tonnes that is mostly contributed by its Corus unit in Europe.
Earlier, SAIL said its net profit in October-December, its fiscal third quarter, fell to Rs1,107 crore ($245 million), compared with Rs1,676 crore a year ago. Net sales rose to Rs11,140 crore from Rs9,700 crore.
A Reuters poll of 15 brokerages had forecast quarterly profit at Rs1,330 crore on net sales of Rs11,320 crore.
The company said higher coal prices had an adverse impact on profitability to the extent of Rs1,090 crore during the quarter.
Ahead of the results, SAIL shares closed down 2.3% at Rs17,290 crore in a weak Mumbai market. The stock, valued by the market at $16.2 billion, declined 22% in 2010, compared with a 17.4% rise in the main stock index.