BackTata Steel margins bounce back on lower material costs
Tata Steel margins bounce back on lower material costs
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The June quarter net profit of Tata Steel Ltd fell just marginally short of street estimates, but the company’s shares interestingly fell by a
Volumes fell by 20% compared with the March quarter, but thanks to an 8% improvement in average realizations, the decline in net revenues was restricted to 13.6%. Note that JSW Steel Ltd had earlier this month reported a drop of 4.4% in average sales realization for the June quarter. Material costs fell by as much as 40%, even though production dropped by only 5%. The gains would have been more but for the fact that the company is still carrying high-cost inventory of coal at last year’s contracted rates.
According to the company management, this inventory (contracted at about $300, or Rs14,550, per tonne) would last until the end of the September quarter. The
Coming to the fall in the company’s shares, they in fact fell in the morning session itself, much before the results were announced in the late afternoon. This could well be a case of profit booking, considering that Tata Steel shares had more than trebled from its lows in early March. With the steel cycle showing signs of improvement, interest in steel stocks has been high. According to a report by Metal Bulletin Inc., prices are expected to rise considerably between July and October. Manufacturers the world over, including Corus, are raising utilization levels to align supply with a expected increase in demand.
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