- Lower steel prices, higher raw material costs squeeze margins, impact EBIDTA
- Export duty takes toll on sales
- Mills ‘cautious’ in Q3 despite demand rebound expectations
Morning Brief: The 15% export duty, weak global demand, falling steel prices, higher raw material costs and destocking impacted the performance of India’s primary mills in Q2FY2022-23 (Q2FY23). Crude steel production for the quarter was either down or flat as mills opted for maintenance shutdowns to balance the demand/supply mismatch. EBIDTA plunged as well as net profit amid falling prices and squeezed margins. SteelMint goes behind the scene.
Crude steel production
a. SAIL: This public sector behemoth reported flat crude steel production at 4.30 million tonnes (mnt) in Q2FY2022-23 (Q2FY23). Y-o-y, crude steel output was down 4% against 4.5 mnt in Q2FY22. SAIL has set a target of 17-17.5 mnt of crude steel production for FY23.
b. Tata Steel: This steel major’s crude steel production inched down 2% to 4.64 mnt in Q2FY23 as against 4.73 mnt in Q1FY23. However, production was up 2% compared to 4.56 mnt in Q2FY22.
c. JSW Steel: Crude steel production of this integrated major in Q2FY23 inched down 1% to 4.95 mnt q-o-q, compared to 5 mnt in Q1FY23. Production, including that from BPSL, also dipped 1% to 5.57 mnt against 5.62 mnt in the quarter under review. However, output was up a sizeable 21% y-o-y when compared to 4.10 mnt in Q2FY22. Reduced capacity utilisation due to maintenance shutdowns during the quarter and concerns regarding availability of raw materials weighed on production volumes.
d. JSPL: Private steel major Jindal Steel and Power Limited (JSPL) recorded Q2FY23 crude steel production at 1.81 mnt, down 9% q-o-q compared to 1.99 mnt in Q1. Y-o-y, Q2’s output dropped 6% against 1.93 mnt in Q2FY22. Production dropped due to maintenance shutdowns at Raigarh and Angul plants during the quarter.
However, the company is upbeat on domestic demand and looking to increase capacity utilization over the next two years.
e. *AM/NS India: Integrated steelmaker ArcelorMittal Nippon Steel (AM/NS) India recorded crude steel production of 1.70 mnt in Q2 – flat on a q-o-q basis (Q1FY23). The same was down 12% y-o-y against 1.9 mnt seen in Q2FY22.
Sales
a. SAIL: The company’s sales for Q2FY23 rose 31% to 4.20 mnt against 3.20 mnt in Q1FY23. However, sales fell 2% y-o-y against 4.3 mnt in Q2FY22. Sales volumes were majorly impacted by lower exports during the quarter. The sales guidance for FY23 stands at 16-16.5 mnt.
b. Tata Steel: The steel major reported a 22% q-o-q growth in sales at 4.76 mnt in Q2FY23 compared to 3.89 mnt in Q1FY23. Y-o-y, Q2 sales were up 8% compared to 4.42 mnt in Q2FY22. It may be mentioned that the company posted its best-ever sales during the quarter despite the 15% export duty, the monsoon in Q2, and geo-political issues — which led to a volatile demand and pricing scenario.
c. JSW Steel: Saleable steel sales in Q2 were at 5.01 mnt, up 24% compared to 4.03 mnt in the previous quarter. Sales volumes (including that of BPSL) increased 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 y-o-y by 880,000 tonnes in Q1 and 1.46 mnt in Q2, on account of the 15% export tax slapped in end-May, 2022.
d. JSPL: Steel sales by JSPL stood at 2.01 mnt in Q2FY23, up almost 16% q-o-q against 1.74 mnt in Q1FY23. However, the same fell 6% against 2.13 mnt seen in same period a year ago.
e. AM/NS India: Steel sales volumes rose almost 7% to 1.60 mnt in Q2FY23 against 1.50 mnt in Q1FY23.
EBITDA
a. SAIL: The PSU major reported an EBIDTA plunge of almost 55% to INR 1,174 crore in Q2FY23 against INR 2,606 crore in Q1FY23. The net sales realization (NSR) stood at around INR 57,000-58,000/t ($703-715/t) during the quarter. Product-wise, long steel prices fell by INR 6,000/t ($74/t) and flat steel prices by INR 13,000/t ($160/t) q-o-q in Q2. The company expects the NSR in Q3 to be at similar levels.
b. Tata Steel: The steel major’s standalone EBITDA fell almost 47% q-o-q to INR 5,135 crore in Q2FY23 against INR 9,616 crore in Q1. On y-o-y basis, it declined sharply by 62% against INR 13,557 crores in Q2FY22. Utilisation of raw materials inventory bought at high prices and lower realisations impacted EBITDA margins during the quarter. The guidance on net realisations for the third quarter is around INR 800/t lower than this quarter’s.
c. JSW Steel: The operating EBIDTA touched INR 1,742 crore in Q2FY23, down a substantial 48% q-o-q compared to INR 3,352 crore in Q1FY23. As with other mill, JSW Steel also consumed higher-priced raw materials in the quarter under review 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.
d. JSPL: The Q2FY23 EBITDA plunged nearly 50% to INR 1,426 crore in comparison to INR 2,824 crore in Q1. Higher volumes, lower prices and reduced realisations were among the prime reasons for the decline. The company had opening inventory which was sold at reduced prices during the quarter, which weighed on the margins. The differential in realization between the opening and later inventory was around INR 600 crores (approximately INR 3,000/t).
e. AM/NS India: The company reported an EBITDA of $204 million in Q2FY23, against $365 million in the previous quarter, a 44% q-o-q drop. The drop occurred due to lower selling pressure and higher costs. On a y-o-y basis, the drop is nearly 63%, compared to $551 million in Q2FY22.
Profit after tax
a. SAIL: The PSU steel major saw its net profit plunge 101% in Q2FY23 to INR 386 crore from INR 776 crore in Q1FY23. Plants that produce flat steel products — Rourkela Steel Plant, Bokaro Steel Plant and Bhilai Steel Plant — posted negative results for the quarter due to the major correction in flat steel prices. Durgapur Steel Plant and IISCO Steel Plant (focused on long products), posted positive results because longs prices remained relatively unaffected compared to flats in Q2.
b. Tata Steel: The PAT showed a nearly 57% drop to INR 2,655 crore compared to INR 6,114 crore in Q1FY23. Koushik Chatterjee, ED and CFO, Tata Steel, in an earnings release said, “Globally, gross steel spreads declined amidst concerns about global recovery and elevated input costs… We continue to remain focused on cost optimization, operational improvements and working capital management to maximise cash flows.”
c. JSW Steel: The steel major posted negative profit after tax (PAT) of INR 91 crore in Q2FY23. Lower output during the quarter amid declining steel prices weighed on the financial performance. 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 due to the 15% export duty amounted to INR 60 crore. The company also suffered losses of around INR 330 crore due to the currency volatility.
d. JSPL: PAT plunged more than 90% q-o-q to INR 473 crore in Q2 against INR 6,623 crore in Q1. the company’s steel exports volumes declined by around 36% q-o-q because of the 15% export duty imposed in late-May.
Outlook
Mills expect the operating environment to improve in Q3 amid restocking needs. A recovery in Indian steel demand and favourable movement in raw material prices is expected from here.
However, the short-term outlook remains uncertain for mills and caution would perhaps be the watchword looking at the rest of the current quarter.
*Although numbers are given fiscal year-wise, AM/NS India follows the calendar year.
Leave a Reply