Indian steel major, JSW Steel, posted negative profit after tax (PAT) at INR 91 crore in Q2FY’23. Lower output during the quarter amid declining steel prices weighed on the company’s financial performance. Operating EBIDTA dropped to around INR 1,742 crore in Q2 from INR 3,352 crore in Q1 and INR 8,673 in Q2FY’22.
Meanwhile, the share of exports came down to around 10% of total sales or 560,000 tonnes (t) in Q2 from 880,000 t in the previous quarter. Losses out of 15% export duty announced on 21 May amounted to INR 60 crores. The company also suffered losses because of the volatility in foreign currency exchange which was around INR 330 crore.
Factors behind drop in earnings:
1. Concerns around raw material availability and logistical challenges: An extended monsoon obstructed the smooth flow of raw materials. Iron ore mining and transportation along with coal was impacted adversely. JSW’s capacity utilisation reduced to 86% in Q2 compared with 93% in the previous quarter.
2. Crude steel production declines: Crude steel production (including volumes from BPSL) dropped by 1% q-o-q to 5.57 mnt in Q2 as against 5.62 mnt in the last quarter. Reduced capacity utilisation due to maintenance shutdowns during the quarter and concerns around the availability of raw materials weighed on production volumes.
However, production was up 36% on the year compared with 4.10 mnt in Q2 of the previous fiscal.
3. Blended NSR drops 14%, profit margin under pressure: The blended net sales realization (NSR) declined by 14% (INR 10,000/t) in Q2 compared with Q1. The company consumed higher-priced raw materials this quarter while finished steel prices came under pressure. Coking coal prices in Q2 averaged at around $ 421/t, which was higher by $40/t against the previous quarter’s $381/t.
Sales performance
Sales volumes (including sales of BPSL) increased by 30% q-o-q and 47% y-o-y to 5.63 mnt in Q2. Out of this, exports accounted for only 10% in Q2 which is lower 880,000 t in Q1 and 1.46 mnt in Q2 of last fiscal.
Inventories reduce by 435,000 t in Q2, trend to continue in H2: Company officials highlighted there was a reduction of steel inventory by 434,000 t in Q2. Sales proceeds were utilized to reduce debts and the company expects to further reduce inventory by 400,000 t in the second half of the fiscal.
This was possible due to improved penetration in the domestic market. The company secured its market share further in the oil and gas and wind power segments through its Anjar Plate Mill. Automotive and other OEMs including solar pannels and tin plate packaging also saw improved demand.
Projects commissioned
Downstream projects such as the 500,000 t continuous annealing line at Vasind were completed in August. A second tin plate line of 250,000 t was commissioned at Tarapur in September.
Outlook
The company foresees a better year ahead and plans to reduce inventory in the second half on better demand in the domestic market and better domestic prices compared with imports. Also, coking coal prices are expected to drop by $80/t in Q3. Expansion plans are in the pipeline, thanks to sustained domestic demand which is likely to absorb the increase in production from projects to be commissioned in the near future.
There are two major projects nearing completion. The company expects commissioning of the downstream project of 250,000 t colour coating line at Rajpura in Q4 and the 120,000 t colour coating line in Jammu & Kashmir by Q1FY24.
JSW has set production and sales guidance for FY’23 at 25 mnt and 24 mnt, respectively.
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