Lower input cost likely to help steel industry- 03/06/2015

Steel companies will benefit from lower input costs in this quarter as coking coal and iron ore prices have declined significantly with steel demand falling across the globe.

Coking coal spot prices have dropped to $86-$85 from $100 in the previous quarter while contract prices of coking coal have dropped by around 10-15 per cent sequentially.

Margins should improve from the coming quarter, but with unfavourable macro-economic conditions, steel demand continues to remain subdued and steel prices have also declined owing to low demand.

A senior official from Steel Authority of India (SAIL), said, “Input costs have declined in the quarter but steel prices are also on the lower side due to low demand. Going forward the sector is expected to witness revival in demand with government’s focus on infrastructure and housing.”

JSW Steel and SAIL will benefit due to lower coking coal prices as JSW Steel imports 100 per cent of coking coal and buys iron ore from the market with no captive mines. SAIL and Tata Steel have captive iron ore mines but SAIL imports around 80-85 per cent of coking coal while Tata Steel imports around 60-65 per cent of coking coal, said Gautum Chokroborty, an analyst at Emkay Global.

Chokroborty said lower input costs will have some positive impact on the margins of the steel companies, but it is difficult to gauge the quantum as there are many macro-economic factors impacting the sector. Further subdued steel demand across the globe has resulted in cheap imports and globally steel prices have also declined.

Jayant Acharaya, director marketing, JSW Steel also said that coking coal prices in the April-June quarter has declined by around 10 per cent compared to last previous quarter but it is too early to comment if it would result in improvement of margins.

In the January-March quarter steel companies had reported decline in profits due to lower sales and realisation.

However, going forward demand is expected to revive from the fourth quarter once infrastructure activities start picking up post monsoon.

An analyst at Prabhudas Lilladher, declining to be identified, said “Post monsoon infrastructure activities should pick up and demand is expected to be better in the second half of the year compared to the first half of 2015-16.”

Chokroborty of Emkay also said that while steel companies would benefit from lower input costs, demand is expected to pick up from the fourth quarter.
(Source: My Digital Fc via Hellenic shipping news, 03/06/2015 )