Large integrated steel companies are likely to report a return to profitability and earnings growth in the July-September period, buoyed by higher domestic steel prices, low input costs and demand recovery in key sectors such as construction, automotive and consumer durables. According to the quarterly production numbers published by large steel mills, business is thriving despite the 31% year-on-year fall in estimated steel consumption.
A primary indicator of this recovery is reflected in the price of hot-rolled coils (HRC), a flat steel product that is further processed and used in transport, construction, shipbuilding, capital goods and energy pipelines.
HRC is produced by large mills with captive iron ore mines, and downstream production and marketing facilities. The mills also have easy access to export markets. While domestic HRC prices rose 15% in the past two months, and are 9% above pre-covid levels, input costs, for coking coal and iron ore, have either fallen or remained flat.
After China, the world’s largest producer and consumer of steel, reduced its exports during the last quarter, Indian producers have more room to raise HRC prices to $588 per tonne in September, compared with $468 per tonne in March, up 24%.
All major listed steel players have ramped up their production and witnessed higher sales in the September quarter, ending the first six months of the current financial year on par with FY20.
For instance, Steel Authority of India Ltd (SAIL), the largest producer, registered an impressive 31.3% sales growth in Q2 compared to a year ago. Anil Kumar Chaudhary, chairman, SAIL, said the bulk of the challenges presented by covid-19 and the national lockdown are now behind.
“The pick-up in economic activities across sectors is enhancing domestic steel demand. SAIL has been able to return to the previous year’s sales levels and is now focusing on ramping up production and sales further. We’re focusing our strategy and marketing to leverage every opportunity in the market.”https://f2fc7ddd7f8373f5ad4a4f6851476bc6.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html
Likewise, Tata Steel, the largest private producer, ramped up its steelmaking and downstream operations to pre-covid levels, with all its major sites operating at 100% capacity. “During the quarter, we increased our crude steel production by 54% quarter-on-quarter and 2% year-on-year to 4.59 million tonnes (mt). We also reached our highest ever quarterly deliveries of 5.05 mt,” the company said. It is also expecting automotive and retail sales to stage a comeback.
While all major producers were heavily dependent on the export market to compensate the lack of demand in India in April-June, Tata Steel was able to reduce low-margin exports in Q2 and ramp up domestic sales to 3.86 mt, up 164% quarter-on-quarter and 10% from the year-ago.
While Tata Steel’s European operations continued to struggle due to cash crunch, the domestic subsidiary, BSL, formerly Bhushan Steel, reported 23% rise in sales in the second quarter. Jindal Steel and Power Ltd, too, reported its highest ever quarterly standalone sales at 1.93 mt during the quarter. JSW Steel’s crude steel production was flat at 3.85 mt in Q2, while the half-year figure fell 16% from 8.08 mt in FY20 to 6.81 mt in FY21.