Steelmakers with captive supplies such as Tata Steel Ltd and SAIL are likely to deliver high sequential Ebitda growth, aided by higher volumes and improvement in realization.
The recent surge in base metal prices has come as a boon for realizations for metal firms. Steel prices, though volatile, have also remained firm. Consequently, prospects for September quarter earnings have improved.
Average domestic product prices for long and flat steel have increased 1% and 3%, respectively, on a sequential basis in September quarter, point out analysts at PhillipCapital India Research. In non-ferrous space, average aluminium, zinc and lead prices on the London Metal Exchange (LME) rose 10%, 3% and 7%, respectively, it added. Average alumina prices spiked 14.5% sequentially to $317/tonne and would benefit alumina manufacturers.
Even as realizations improve, the outlook on volume too is upbeat due to pent-up demand following the lifting of restrictions imposed during the second wave of covid-19. In Q2FY22, the steel sector witnessed a sharp sequential improvement in offtake, with higher exports offsetting muted domestic demand, said analysts at Centrum Broking Ltd in a note. The brokerage expects non-ferrous volumes for the September quarter to be either flat or moderately higher for most manufacturers.
However, Hindustan Zinc Ltd may see lower volumes due to the closure of a smelter for maintenance. Meanwhile for firms without captive supplies, rising input costs may turn out to be a dampener. Coking coal costs have been rising sharply and even prices of iron ore, the key raw material for steel, have stayed significantly high during September quarter.
Higher coking coal and iron ore prices more than offset higher steel prices, affecting Ebitda/tonne for some non-integrated manufacturers. Steelmakers with captive supplies such as Tata Steel Ltd and SAIL are likely to deliver high sequential Ebitda growth, aided by higher volumes and improvement in realization.