SAIL to seal Kobe JV in 2 months, Q4 net dips

SAIL to seal Kobe JV in 2 months, Q4 net dips

New Delhi: Steel Authority of India Ltd (SAIL) on Friday said it will finalize a joint venture with Japan’s Kobe Steel for a steel plant in eastern India within two months, even as rising input costs pulled down the company’s fourth-quarter profit.

SAIL, the largest steel producer in the country, and Kobe will set up an equal joint venture for the 0.5 million-tonne plant at Durgapur in eastern India, with expected investment of $350 million, SAIL chairman CS Verma told reporters.

The state-run firm is also conducting a joint feasibility study with Kobe for another $2.2 billion steel plant and a 1,000 megawatt gas-based power plant in north India.

Overseas steelmakers are eyeing demand from India’s fast growing automobile market, which is recording double-digit growth as the economy expands, prompting global carmakers to boost investment in the country.

India’s steel demand grew 8.6% in March, according to the World Steel Association.

Last year, Japan’s JFE Holdings Inc took a 14.9% stake in India’s JSW Steel Ltd for $1 billion to gain a foothold in the Indian market, while rival Nippon Steel is also setting up an automotive sheet steel joint venture with world No.7 Tata Steel.

SAIL, with annual capacity of about 15 million tonnes in India, lags Tata Steel’s capacity of about 28 million tonnes that is mostly contributed by its Corus unit in Europe.

SAIL is also in advance talks to finalize a joint venture with South Korea’s POSCO for a 1.5 million tonne steel plant at Bokaro in eastern India, Chairman Verma said.

Q4 profit slips

SAIL’s March quarter net profit fell to 507 crore as a sharp rise in raw material costs and weakening demand for flat products took a toll on margins, while net sales were nearly flat at 11945 crore.

A Reuters poll of 12 brokerages had forecast quarterly net profit at 1620 crore on net sales of 128 billion.

“The main reason for the dip in profits is very high cost of coking coal. Last year, it was $128 a tonne, while it averages $212 per tonne now," Verma said.

A weaker-than-expected market has forced many Asian steel mills to put off price hikes to account for rise in costs of iron ore and coking coal in the first quarter of 2011, leading them to report lower profits.

On Thursday, Japan’s Nippon Steel said it may cut crude steel output in April-June due to weak domestic demand.

Earlier, South Korea’s POSCO reported a 36% fall in operating profit.

SAIL, which imports 75% of its coking coal requirement, said higher coal prices hurt full-year profitability to the extent of 3718 crore. It also had to bear additional cost of 2200 crore for the year on account of higher wages.

It will spend 14337 crore in the current fiscal year to boost capacity. Its hot metal capacity will go up to 19.5 million tonnes by March 2012, from 14 million now, Verma said.

SAIL also hopes to launch its up to $1.8 billion follow-on offer in early-June, he said.

The public offer, in which the government will sell a 5% stake and the steelmaker issuing an equal amount of new shares, is part of the federal government’s broader programme to divest stakes in roughly 60 companies over the next few years.

Ahead of the results, SAIL shares closed down 1.6% at 159.30 in a weak Mumbai market. The stock, valued by the market at $15.1 billion, has declined 12.7% so far in 2011, compared with a 6.7% fall in the main stock index.