The first quarter of FY’23 has been a challenging one due to geopolitical tension, surge in COVID-19 cases in China, global inflation, etc; however, Tata Steel has been able to improve its margins to secure a net realisation of about INR 5,000/t, slightly lower than expected, company officials informed at the quarterly investors’ call.
Tata Steel expects improvements in H2 due to the following factors:
- The pandemic situation in China has eased which will unleash pent-up demand. Moreover, the government’s stimulus to boost the property sector is likely to boost market sentiments.
- Major Chinese mills are losing profits due to higher coal prices as a result of which either they would cut production or increase steel prices.
- Indian steel prices seem to have stablised; pent up demand and the demand from projects, which was delayed, seem to be recovering as steel prices have fallen. Demand from the automotive sector, too, has improved.
Tata Steel expects inventory restocking to gather momentum post monsoon and owing to the early onset of the festive season, which will help boost domestic steel prices.
Price outlook: Steel prices are close to bottoming out and demand has improved from the various segments such as automotive as well as construction and consumer durables. In the longs segment recently there was a price hike owing to increase in thermal coal prices resulting in cost pressure. Tata Steel expects margins to shrink, while volumes are likely to expand. The company expects steel sales to increase by 0.5 mnt in Q2 against Q1.
On export duty: In the medium to long term, the company’s submission to the government is that India should rightfully become an exporter. India has abundant raw material resources and should look at generating employment for a vast segment of the population. Steel capacities should be created keeping the export market in mind alongside the domestic market. The company said it hoped the steel export duty to be removed sooner or later.
Update on projects:
6 mnt/year pellet plant: The pellet plant will help Tata Steel to save costs. It is likely to be commissioned in the next three months or so as power is being charged and the equipment are being tested.
2.2 mnt/year cold-rolling mill: Power has been charged and equipments are being tested. The cold rolling mill will commence in the next few months and will be commissioned by the end of the year, followed by the galvanisation and the continuous annealing lines.
In the Kalinganagar works, Tata Steel will produce 1.85 wide cold-rolled coils, 200mm wider than in Jamshedpur. This, in turn, will help the company to enter into new markets, primarily automotive.
NINL: Tata Steel plans to start the blast furnace in the next three months since the plant has remained inoperative for the last two years.
Future capacity addition: The company is completing its capacity expansion from 3 mnt to 8 mnt at Kalinganagar and Neelachal Ispat Nigam Ltd (NINL) to 5 mnt from 1 mnt.
Production process: To bring down carbon footprint, the company has been producing steel by using more scrap in India and at other integrated sites.
Other highlights:
Production flat q-o-q: Tata Steel reported steel production at 4.73 mnt in Q1FY’23, largely flat compared to the previous quarter. On the other hand, production rose 6% as against 4.45 mnt in Q1FY’22.
Sales plunge 22% q-o-q: The company’s sales dropped 22% to 3.89 mnt in Q1 as against 4.97 mnt in Q4 of last fiscal. On an annualised basis, too, volumes fell by 3% as against 3.99 mnt in Q1FY’22.
EBITDA falls 22% on quarter: Tata Steel’s standalone earnings before interest, tax , depreciation and amortisation (EBITDA) stood at INR 9,616 crore in Q1, down 22% against INR 12,363 crore a quarter ago. Similarly, on y-o-y basis, EBITDA plunged 28% against INR 13,370 crore in Q1FY’22.
Tata Steel Europe:
- Liquid steel production up 6% q-o-q: Production volumes rose 6% to 2.44 mnt in Q1 as against 2.31 mnt in the previous quarter. On the other hand, output dropped 13% y-o-y against 2.67 mnt in Q1FY’22.
- Sales down 11% q-o-q: Steel sales by TSL Europe stood at 2.14 mnt in Q1 versus 2.40 mnt in Q4FY’22. Sales rose 3% as against 2.33 mnt in Q1FY’22.
Declining coal prices in Q2: Coal consumption cost is likely to go down by $40/t. Moreover, the prices of coal that end-users are buying will edge lower by $150-160/t compared to Q1.
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