Mumbai: JSW Steel, the country’s second largest private steel manufacturer, is likely to report a steep fall in its September quarter earnings largely because of poor domestic demand. A Bloomberg poll of 12 analysts has estimated the company’s consolidated net profit for Q2 at 517.8 crore, down nearly 75% year-on-year, while consolidated revenue is seen falling 17% to 17,881.2 crore.

In the corresponding period a year ago, the company had reported a net profit of 2,087 crore, and consolidated revenue of 21,608 crore.

The steel maker is scheduled to announce its earnings on Wednesday.

The domestic steel industry has been battered by a slump in demand, pulling down prices to a 34-month low in October. Declining input cost, such as that of coking coal, has failed to boost margins for firms. In the second week of October, prices of domestic hot-rolled coil (HRC) fell to 34,250 per tonne - below the threshold of 34,719 per tonne ($489 per tonne), the price which invites anti-dumping duty on steel imports.

Foreign brokerage firm Jefferies has placed an ‘underperform’ call on the three large domestic steelmakers, including JSW Steel. In an October 21 report, it said “Domestic steel demand was flat year-on-year in September (5% year-to-date in FY20). Exports surged 2 times to about 1 million tonnes in September, helping mills clear inventories, but at 50 day, this still appears elevated. Seasonally demand improves after monsoon, but with two key end-use sectors autos (about 10% of demand) and property (about 40%) likely to stay weak (cyclical auto slowdown, real estate stress), seasonal restock and demand pick up could disappoint."

The difference between domestic and imported HRC prices has widened in recent months, with domestic prices trading at a discount of 13% to landed prices. China’s export HRC prices were hovering at $420 per tonne at the time of imposition of the anti-dumping duty, a level slightly lower than the current Chinese HRC price of about $430.

With the widening of the gap between domestic and landed steel prices in recent months, Indian steelmakers have been focussing more on export markets, and steel exports have consequently risen in the last two months. “However, a 12% fall in Chinese export HRC prices since August 2019 could act as a fresh challenge for domestic steelmakers looking to augment exports amidst depressed domestic demand conditions," Jayanta Roy, senior vice-president & group head, Corporate Sector Ratings, ICRA, said.

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