New Delhi: After the worst Q3, the steel sector may further face a gloom in the next three months due to a high raw material costs and wilting demand for the commodity, feels industry experts.
“The third quarter was (the) worst (for steel). The next quarter is going to be equally bad on account of input pressure and lower sales, among other things,” Angel Broking Research Associate Pawan Burde said.
For the Q3 ended December, steel majors like SAIL and Tata Steel reported an over 50% drop in net profit while others like JSW Steel and Ispat posted a net loss.
“It has been the worst quarter for the steel sector. Almost all firms posted huge declines in net profit mainly due to weak domestic demand and negative consumer sentiment,” Karvy Comtrade’s Vishal Maniyar said.
Steel demand and prices fell steeply during the reporting period on account of the global industrial downturn, which saw off take coming down from user industries like automobiles and infrastructure by as much as 40%.
Prices too plunged by over 50% from the peak of about $1,250 a tonne early last year, eroding profits of the steel majors.
“The adverse impact (due to) higher prices of coking coal alone (accounted for) approximately Rs2,641 crore for us,” SAIL chairman S K Roongta had said last week.
Selling at $96 a tonne last year, coking coal prices have touched $300 a tonne under long-term contracts in the international market. Coking coal is a vital raw material in steel-making.
Both the country’s top two steel-makers, SAIL and Tata Steel, posted a 56% decline in their net profit to Rs843.34 crore and Rs466.24 crore, respectively, for the third quarter ended December 31,2008.
The two firms command nearly 40% of the country’s steel output of about 55 million tonnes.
SAIL had a net profit of Rs1,934.66 crore in December quarter of fy08 while Tata Steel posted a net profit of Rs1,068.58 crore in Q3 of the last fiscal year.
For major steel players JSW and Ispat, the third quarter saw their balance sheets reflecting losses of Rs127.5 crore and Rs651.7 crore, respectively.
Besides the fall in prices of steel and input pressure, the steel firms attributed the shrinking profits to fluctuations in the value of the rupee against the dollar. In November, the domestic currency had touched Rs50 against the US dollar.
“For the first time in many years, the company has a net loss ... This is primarily because of a forex loss of Rs 177 crore,” JSW Steel vice chairman and managing director Sajjan Jindal said.
Even as the steel companies are passing through a tough phase now, experts feel things may look up for the sector from the second quarter of the next fiscal year.