Tag: steel price hike

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Editorial

Q2 Result Analysis: Tata Steel Net Profit Soars 660% YoY

TATA STEEL q2 results

Tata Steel, the steel giant, saw incredible growth this quarter in terms of profits, Q2FY22. In the second quarter, the steelmaker saw its revenue grow by ~62% YoY and ~13% QoQ. The revenue growth eventually resulted in a whopping ~660% growth over a year. In the current quarter, Q2FY22, the company scored a net profit of Rs 11,918.1 crore against Rs 1,565.4 crores last year, the same quarter. The company’s profits grew by ~33% over the previous quarter.

Source: Company Website

What Drove The Quarterly Results?

In the previous marketfeed articles, we have discussed the steel market in COVID-19 times. We have addressed the industry’s stress globally, China’s involvement, and how the sector recovered post-pandemic. To know more, you can read: 

Global Steel Prices Volatility, China-Australia Trade War and Indian Metal Market: Analysis

Reasons Behind the Rise in Steel Prices in India

Steel Prices Surge in India; is China Hoarding Global Steel?

To sum it up, steel plants were operating below capacity, China, the largest steel supplier, had disrupted global supply citing environmental concerns. Post-pandemic, the supply picked up, at least in India, yet, the prices remained high globally. Indian steelmakers took advantage and gained higher margins on exports. 

The current quarter saw high vaccination rates, normalised trade, and healthy steel prices in the international steel market. Like other steel companies, Tata Steel managed to gain higher realisations in the domestic market. In the global market, Tata Steel managed to play on better price realisations and increased volumes. However, lesser ‘deliveries’ in Europe impacted the profit numbers

For Tata Steel, production increased by 2% on QoQ and 4% on a YoY basis despite planned maintenance shutdowns. Steel sales volume increased by 4% QoQ base with best-ever quarterly sales of Rolled Products.

Currently, Tata Steel is working on offsetting its debt. The company’s debt stood at Rs 88,501 crore in the quarter ended March 2021. The debt was reduced by 11.2% to Rs 78,163 crore in the current quarter. The company plans to reduce gross debt by nearly Rs 14,000 crores in FY22 while prioritising off-shore debt repayment.

The company saw its operating expenses increase by 41% YoY and 17% QoQ. The expenses increased primarily due to an increase in the purchase of  Iron ore and coal consumption cost across its key entities and also higher purchase of Finished & Semi-finished goods.

In other news, the shortage of semiconductors in the automobile has hit the demand. The problem is likely to persist in the short term. Once the problem is mitigated, one can expect a healthy steel sales volume in the automobile sector.  

The company’s investor presentation states its future goals. The company plans to offset a huge amount of debt and aim for strong earnings and improved cash flow performance. It intends to focus on capital allocation, cashflow, and working capital management. Moreover, the company plans to spend Rs 10,000- Rs 12,000 crore as capital expenditure. 

Recovering markets have paved the way for greater demand for steel and lowered material costs. India steel demand is expected to improve, supported by govt’s push for infrastructure spending and consumer demand with the onset of the festive season. One can expect demand improvement across segments and high coking coal prices. Coking coal is a very critical raw material in manufacturing steel. 

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Market News Top 10 News

India’s Services PMI Falls into Contraction Territory in May – Top Indian Market News

India’s services PMI falls into contraction territory in May

India’s services sector activities slumped into contraction territory for the first time in eight months in May 2021. The deadlier second wave of the Covid-19 pandemic has led to muted domestic demand and a sharp decline in international orders. The IHS Markit India Services Purchasing Managers’ Index (PMI) fell to 46.4 in May, compared with 54 in April. PMI is a month-on-month calculation and a value below 50 represents contraction when compared to the previous month. The growth of new work intakes came to a halt in May, with companies posting the first decline in sales since September 2020. 

Read more here. 

Snowman Logistics partners with Dr Reddy’s for Sputnik-V vaccine in India

Snowman Logistics has entered into a strategic partnership with Dr Reddy’s Laboratories to provide end-to-end logistics solutions for the delivery of Sputnik-V Covid-19 vaccine across India. The company will manage the vaccine delivery through five of its high-capacity temperature-controlled warehouses in Mumbai, Delhi-NCR, Kolkata, Chennai, and Bengaluru. It will offer storage, order processing, shipper packing, and secondary transportation from these locations.

Read more here.

Arvind Fashions Q4 Results: Net loss at Rs 99 crore

Arvind Fashions Ltd reported a consolidated net loss of Rs 99.45 crore for the quarter ended March 2021 (Q4 FY21). It had posted a net loss of Rs 209.12 crore in the corresponding quarter last year (Q4 FY20). Its revenue from operations rose 14% YoY to Rs 768.59 crore in Q4 FY21. The company’s board has approved a proposal to raise up to Rs 400 crore via the further issue of shares through a preferential issue and/or Qualified Institutional Placement (QIP).

Read more here.

Lupin to enter digital healthcare space in India

Lupin Limited said it will enter the digital healthcare space in India, with a focus to provide a digital therapeutics platform for doctors and patients. The company recently incorporated a new entity, Lupin Digital Health Ltd, which will undertake this venture. Lupin is a multinational pharmaceutical company based in Mumbai. It manufactures and distributes a wide range of branded and generic formulations, biotechnology products, active pharmaceutical ingredients (APIs), etc. 

Read more here.

Gujarat State Petronet Q4 Results: Net profit rises 9% YoY to Rs 417 crore

Gujarat State Petronet Ltd reported an 8.82% YoY increase in consolidated net profit to Rs 416.67 crore for the quarter ended March (Q4). Net profit has declined by 11.43% when compared to the previous quarter. Its revenue from operations rose 19.37% YoY to Rs 3,828.66 crore during the same period. Net profit for the entire financial year 2020-21 (FY21) declined 7.08% YoY to Rs 1,606.76 crore. The company’s board has recommended a dividend of Rs 2 per share.

Zydus Cadila gets tentative USFDA approval to market lung cancer treatment drug

Zydus Cadila has received tentative approval from the US Food & Drug Administration (USFDA) to market Osimertinib tablets. The drug is used to treat lung cancer. It works by slowing or stopping the growth of cancer cells. The pharma company said the newly approved drug will be manufactured at its formulation manufacturing facility at SEZ, Ahmedabad. Zydus Cadila now has 318 approvals and has so far filed over 400 Abbreviated New Drug Applications (ANDAs) since the financial year 2003-04.

Read more here.

Nilkamal Q4 Results: Net profit rises 20% YoY to Rs 38 crore

Nilkamal Limited reported a 19.84% YoY increase in consolidated net profit to Rs 38.06 crore for the quarter ended March (Q4). Net profit has declined by 29.9% when compared to the previous quarter. Its revenue from operations rose 21.10% YoY to Rs 679.92 crore during the same period. Net profit for the financial year 2020-21 (FY21) declined by 20.52% YoY to Rs 112.93 crore. The company’s board has declared a final dividend of Rs 10 per share. 

Indian steel manufacturers hike rates by up to Rs 4,900 per tonne

Leading domestic steel manufacturers have hiked the prices of Hot Rolled Coil (HRC) and Cold Rolled Coil (CRC) by up to Rs 4,000 and Rs 4,900 per tonne, respectively. After the price revision, a tonne of HRC will cost Rs 70,000-71,000, while CRC will cost Rs 83,000-84,000 per tonne. The rise in steel prices will impact the prices of vehicles, consumer goods, and the cost of construction. 

Read more here.

Nucleus Software Q4 Results: Net profit declines 2.8% YoY to Rs 27 crore

Nucleus Software Exports Ltd reported a 2.81% YoY decline in consolidated net profit to Rs 27.35 crore for the quarter ended March (Q4). Net profit has increased by 10.19% when compared to the previous quarter. Its revenue from operations declined 10.16% YoY to Rs 124.18 crore during the same period. For the financial year ended March 31, 2021 (FY21), net profit rose 32.54% YoY to Rs 117.95 crore. The board of Nucleus Software Exports has recommended a final dividend of Rs 6 per share. 

Read more here.

IDBI Bank secures $239 million debt judgment in London High Court

IDBI Bank has secured a $239 million (~Rs 1,744 crore) judgment in the commercial division of the High Court of London against a Cypriot subsidiary of India-based Essar Shipping Group. In March 2013, the bank had provided loans totaling $148 million to two Singapore registered companies— Varada Drilling One Pte Ltd and Varada Drilling Two Pte Ltd— for the construction of two jack-up drilling rigs. The borrowers failed to make scheduled repayments, and IDBI Bank had served a formal demand for repayment of the principal amount, interest, default interest, and fees in 2017.

Read more here.

APL Apollo Tubes Q4 Results: Net profit rises 109% YoY to Rs 119 crore

APL Apollo Tubes Ltd reported a 109.82% jump in consolidated net profit to Rs 119.22 crore for the quarter ended March (Q4). Net profit has declined by 9.7% when compared to the previous quarter. Its total income rose 37% YoY to Rs 2,599.61 crore during the same period. For the financial year ended March 31, 2021 (FY21), net profit rose 51.35% YoY to Rs 360.16 crore. APL Apollo is a leading manufacturer of welded steel tubes and pipes in India.

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Editorial

Reasons Behind the Rise in Steel Prices in India

steel sector

Steel prices in India and across the globe have been rising exponentially since July 2020. After surging ~55% in the previous financial year (FY21), it was confirmed that major Indian steel players had hiked rates by a further 10% in April alone. A Rs 4,000 per tonne hike has taken domestic prices of hot-rolled coil (a steel product) to a 13-year high of around Rs 60,000 per tonne. While companies such as JSW Steel, SAIL, Tata Steel, and Jindal Steel & Power continue to benefit from higher prices, other sectors of our economy face huge difficulties.

What could be the reasons behind the surge in steel prices? Let us find out.

Why are Steel Prices Rising?

China Cuts Import Tariffs on Steel to Zero

Last week, China announced the suspension of import taxes on steel. This is part of the country’s multi-year campaign to use market pressures to force its steel manufacturers to shrink and become more energy-efficient and profitable. Thus, it is in line with China’s ongoing drive to reduce steel capacity. Duties on crude steel, pig iron, and recycled steel will be suspended from May 1 onwards. 

China has also removed a rebate (partial refund or tax relief) of 13% on the value-added tax (VAT) it offered on exports of 146 steel items. The rebate is now applicable on 28% of Chinese steel exports as compared to 98% earlier. These rebates would force Chinese steelmakers to concentrate on domestic markets and not produce extensively for overseas markets. This would lead to a general increase in global steel prices (as China produces more than 50% of the world’s steel).

On the other hand, Chinese export prices would no longer be the lowest in the world. It would also reduce the competitive pressure on suppliers particularly in the Asia Pacific region, including Japan, South Korea, Taiwan, Vietnam, and India.

Was China Hoarding Steel?

China had been the largest producer of steel for more than a decade and was known for dumping its steel products across the globe. It produces more than half of the world’s steel. Due to discounted prices, major foreign steelmakers found it very difficult to compete with their Chinese counterparts. 

Despite this, China had turned into a net importer of steel almost a year ago. Even when their steel plants were operating at 90% capacity in June 2020, the country began importing large quantities of steel. Through a well-defined fiscal and monetary stimulus package, China shifted its focus on creating demand and promoting development activities. Do bear in mind that this was during a period when other nations had been under strict lockdowns amidst the outbreak of the Covid-19 pandemic. As a result of these policies, China was able to control the global demand and supply of steel and thereby control prices.

Other Factors

Global steel prices have also skyrocketed due to a steep increase in the prices of iron ore. The decline in iron ore exports from countries such as Australia and Brazil had led to a surge in its prices. At the same time, the iron and steel industry has been witnessing strong growth in demand from China, India, Europe, and the United States. The reduction in global Covid-19 cases and strong vaccination drives have allowed economic activities to resume. However, the magnitude of this increase in demand is much greater than the supply. 

In the Indian context, steel companies had just started ramping up their production capacities in the last few months. There had been a greater demand for steel from the real estate and infrastructure sectors. Due to the surge in Covid-19 cases and the devastating impact associated with it, steelmakers (including JSW Steel, Jindal Steel & Power) have now reduced production to ramp up their supply of medical oxygen to hospitals.

The Impact of Rising Steel Prices

  • The Indian automobile sector has been heavily impacted due to the surge in steel prices and other essential metals. The rise in input costs had affected their operating profits and revenues. We saw that companies such as Maruti Suzuki, Tata Motors, Mahindra & Mahindra, and others had raised the prices of their vehicles in January 2021. Major automakers had to introduce a further hike in rates on select models in April as well. 
  • The real estate and infrastructure sectors will also be affected in the long term as steel and cement prices keep increasing at a rapid pace.
  • The rise in steel prices has also lead to an increase in inflation in India. This is on account of a considerable rise in inflation in the manufacturing sector. According to industry experts, steel prices are expected to remain at elevated levels in 2021 due to high demand. Major companies such as JSW Steel have stated that domestic steel prices are still much below the international rates. The rates are very likely to go up further in the coming months.

Stocks Benefiting from Rising Steel Rates

Over the past few months, we have been witnessing a significant rally in steel stocks due to the prospects of better margins. The shares of Steel Authority of India Ltd (SAIL), Tata Steel, and Jindal Steel & Power Ltd (JSPL) have surged by more than 65% so far since January 2021. JSW Steel has rallied by 85% during the same period. Tata Steel has crossed an important mark of Rs 1,000 and is rising further every day. 

Indian steelmakers are likely to show significant growth in EBITDA in their upcoming financial results. The policy changes introduced by China were well received by investors last week. A further hike in steel products is expected in May, and thus, we could see a potential upside in these stocks. 

However, with the prevailing Covid-19 situation in India, the steel industry is unsure whether it can ramp up production to meet the requirements of the automobile, construction, and other sectors. With most states in India imposing restrictions or lockdowns, production is most likely to be impacted. Let us look forward to seeing how the situation unfolds in the weeks to come.