Indian primary mills’ Q2 performance is a mixed bag

If Q1FY’22 saw crude steel production and sales dip for the primary steel majors because of the second wave of Covid, Q2 has thrown up a mixed bag of performances. Crude steel production rose for some, remained flat or dipped for the others in a monsoon-marred quarter. However, thanks to a release of pent-up demand, sales were up, which offered room for price hikes.

But challenges lay in the form of coal inflation and semi-conductor shortage that impacted flat downstream demand.

SteelMint takes a look at the Q2 performance of India’s primary mills.

Crude steel production

• SAIL: This public sector behemoth reported a crude steel production of 4.47 million tonnes (mn t) in Q2FY’22 compared to 3.77 mn t in Q1, up almost 19% q-o-q as rise in capacity utilisation continued. Crude steel output in H1FY’22 was at 8.24 mn t. SAIL’s production through the blast furnace route comprises almost 99%, with the remaining via EAF.
• Tata Steel: This steel major’s crude steel production inched up 2% to 4.73 mn t in Q2FY’22 as against 4.63 mn t in Q1FY’22. On an annualised basis, output moved up 3% against 4.59 mn t in Q2FY’21.
• JSW Steel: Crude steel production of this integrated major in Q2FY’22 remained flat at 4.10 mn t q-o-q, compared to Q1FY’22. In its recent investors’ call, the steel major said during the Jul-Sept’21 quarter India witnessed weaker demand owing to the monsoons. The company recently installed the largest blast furnace along with steel melting shop (SMS) with two converters of 350 tonnes each through which it will incrementally produce 1.5 million tonnes (mn t) and sell around 1.4 mn t. Further, the company is optimistic about ramping up its capacity. Flat steel production stood at 2.79 mn t and long steel production at 0.92 mn t in Q2.
• JSPL: Jindal Steel and Power Limited (JSPL) recorded Q2FY’22 crude steel production at 1.93 mn t, down 3.98% q-o-q compared to its second highest quarterly production of 2.01 mn t in Q1. The previous high was 2.07 mn t in Q4FY’21. On an annualised basis, production increased 5% against 1.84 mn t in Q2FY’21. However, the steel major is confident of achieving its yearly target of 8-8.5 mn t of crude steel based on its resilient performance in H1 and in anticipation of demand from construction and infrastructure picking up in H2.
• AM/NS: Integrated steelmaker ArcelorMittal Nippon Steel (AM/NS) India recorded 1.89 mn t of crude steel production in Q3CY’21, up 3% q-o-q against 1.83 in the previous quarter, as the mill shifted its focus overseas amidst dull domestic demand following the second wave of Covid-19. On a y-o-y basis, production rose 7% against 1.77 mn t in Q3CY’20. During the first nine months of CY’21, production stood at 5.54 mn t.

Sales

• SAIL: Saleable steel sales touched 4.28 mn t in Q2FY’22 against 3.33 mn t in Q1, up 28.5% q-o-q, despite an overall sluggish demand scenario. SAIL has highlighted that sales guidance for FY’22 will be 16-6.5 mn t and the company is hopeful of achieving its target. Saleable steel sales for H1 were at 7.61 mn t.
• Tata Steel: The steel major reported an 11% growth in sales despite dull demand amidst seasonal factors. Sales volumes touched 4.58 mn t in Q2FY’22 compared to 4.15 mn t in Q1FY’22, up 10% q-o-q. Steel deliveries declined 9% on a y-o-y basis against 5.05 mn t as there was a build-up of inventories in Q2 of the last fiscal. Automotive sales in Q2 moved up to 0.66 mn t, up 18% as against 0.56 mn t in the previous quarter. A year ago, in Q2FY’21, automotive sales had been at 0.47 mn t.
• JSW Steel: Saleable steel sales were at 3.79 mn t, up 5% q-o-q compared to 3.61 mn t in the previous quarter. Blended net sales realisations (NSR) went up 5% on the quarter, but the cost pressure remained high because of the following factors: 1) Increase in coking coal prices globally was about $30/t q-o-q, which pushed up production costs. Further, the steel major looks ahead to disseminate this increase in production cost in the spot market. 2) Iron ore prices remained elevated in the domestic market, showing an increase of 19% q-o-q in Q2FY’22. Flat steel sales stood at 2.61 mn t (against 2.67 mn t in Q1) t while longs were at 0.95 mn t in Q2 (0.84 mnt in Q1).
• JSPL: During Q2FY’22, the steel major, on a standalone basis, reported its highest-ever quarterly sales (including pig iron) at 2.13 mn t, up 32% q-o-q as against 1.61 mn t in the previous quarter. On an annualised basis, sales volume jumped 10% against 1.93 mn t in Q2FY’21.
• AM/NS India: Steel sales volumes rose 3% to1.77 mn t in the quarter under review (Jul-Sept’21) against 1.72 mn t in the previous quarter.

Exports

• Tata Steel: The company reported Q2 export volumes at 0.71 mn t against 0.65 mn t in Q1, up 9% q-o-q. The rise was due to sluggish domestic demand. However, a year ago, the company exported around 1.19 mn t as India observed region-wise phased lockdowns and mills fell back on overseas sales.
• JSW Steel: The company’s export sales were recorded at 38% of total sales in Q2FY’22, marking a 22% q-o-q growth. The company shifted its focus to exports due to subdued demand in the domestic market.
• JSPL: The company’s export sales comprised more than 40% of total sales in Q2FY’22. Export volumes increased due to subdued domestic demand during the seasonally weak Q2, marred by the monsoons. Total sales stood at 2.13 mn t in Q2FY’22.

EBITDA

• SAIL: The PSU major reported an EBIDTA of INR 7,248 crore in Q2 against INR 6,674 crore in Q1 and INR 6,473 crore in Q4FY’21. However, the steelmaker had incurred losses of INR 125 crore in Q1 of the previous fiscal because of the Covid-19-led nationwide lockdown.
• Tata Steel: The steel major achieved its highest-ever standalone EBITDA of INR 13,557 crore in Q2FY’22, up 1% against INR 13,370 crore in Q1FY’22. On an annualised basis, the EBITDA grew sharply against INR 5,824 crore in Q2FY’21.
• JSW Steel: The operating EBIDTA touched INR 8,673 crore, down 9% q-o-q compared to the highest-ever operating EBIDTA of INR 9,491 crore in Q1FY’22. The drop can be attributed to the weaker steel demand in Q2.
• JSPL: The EBITDA jumped up by around 86% to INR 4,519 crore in Q2FY’22 in comparison to INR 2,435 crore in the same quarter of previous fiscal year. However, q-o-q, EDITDA remained flat against INR 4,524 crore in Q1FY’22.
• AM/NS: The company reported an operating profit (EBITDA) of $551 million (INR 4,103 crore) in Q2, which fell sequentially on negative price cost‐impact, including higher iron ore and energy costs. The previous quarter’s EBITDA was at $607 million (100% basis). The company follows the calendar year.

Outlook

With export demand having dried up in the current quarter (Q3), mills are depending on domestic sales to prop up toplines. As per the WSA Short Range Outlook, steel demand in India is projected to increase 16.7% in CY’21 and 6.8% in CY’22. In line with the expected increase in demand, mills are expanding capacity. SAIL is looking at additional 14-15 mn t of capacity across Bokaro, Rourkela and Burnpur plants. Tata Steel is into the next phase of expansion at Kalinganagar with a 6-mntpa pellet plant and 2.2-mntpa CRM complex expansion. JSW Steel is expecting to complete its Dolvi expansion by next year while JSPL is planning a new hot strip mill in Angul to convert semis to finished. Domestic demand in Q4 is likely to be comparatively better because of improved consumption, mainly from infrastructure, manufacturing, automotive, consumer durables etc.