Steel Companies Poised for Higher Earnings in Q4: Prabhudas Lilladher

The improving trends in the coking coal global trade market, as well as sector-wise steady demand, will shoot up per-tonne earnings for Indian steelmakers in the last quarter for the ongoing financial year, Tushar Chaudhari, Lead Research Analyst at Prabhudas Lilladher told ET.

We expect EBITDA per tonne to improve, with large players such as JSW Steel and Tata Steel likely to see more than ₹1,000-1,500/t increase. This he says is due to declining costs of raw materials and higher net sales realization.

“Coking coal prices are still low and consumption cost is forecast to fall $10-12 further. At the same time, net sales realization may go up by ₹500-1,000 depending on the market movements in March,” he added.

Steel demand, which softened through the festive season now revived. Increases in government spending for infrastructure projects contribute to the anticipated sustained demand until the monsoon season.

However global dynamics impact the domestic steel pricing. China’s steel exports are also high despite sluggish international demand, keeping prices under pressure. “Steel prices in China have remained at around $474-475 per tonne while Indian steel continues to be offered at a discount of ₹500-700 per tonne,” Chaudhari said.

While India’s steel import intensity has dropped in recent months, he expects greater imports from China, given the surplus in steel. And while the current import duty is 7.5%, the price difference between home-grown metal and imported stuff has shrunk considerably in just a year.

But on the other, he doesn’t see the Indian government slapping a 20-25% import tax, as some predict, on protectionist measures. He argues, however, that local steelmakers need protection.

“Other countries, like Vietnam and Europe, are rolling out tariffs or reducing import quotas. India must also look at measures to safeguard its domestic steel industry,” he added.

Given the global trade do’s and don’ts in play, it is the Indian policy-makers and market practices that all gaze upon in the months to come.