What to Expect from JSW Steel‘s FY18 Q3 Results?

Indian steel industry is expected to perform better in third quarter of the financial year 2018 (starting from April 2017 to March 2018) due to higher steel prices, rising exports and stable imports.

JSW steel would be one of the biggest beneficiaries owing to its size and efficiency. Company is largest steel producer and has an installed steel-making capacity of 18 MTPA. The company has strong product portfolio covering the entire gamut of flat and long products manufactured through corex and blast furnaces route. In this article we have analysed of what to expect from JSW Steel’s upcoming Q3 FY18 results.

Crude steel production
JSW Steel’s crude steel output in third quarter of FY18 from Oct’17 – Nov’17 stands at 2.71 MnT. As per our analysis, its Q3’s crude steel production is likely to remain at similar levels as its previous quarters of 4.12 MnT in Q1 and 4.10 MnT in Q2.

Quantity in MnT
Source: SteelMint

Raw Material sourcing
As per data maintained by steelmint stats based on railway movement, coastal movement and Karnataka E-auction data, JSW Steel’s iron ore sourcing in Q3 till Nov’17 stands at 5.26 MnT against 7.89 MnT in Q1 and 7.73 MnT in Q2 FY18.In Dec’17.

The Supreme Court raised the ceiling of iron ore mining (grade A and B) from 30 MnT to 35 MnT. The decision will benefit JSW Steel the most as it has integrated steel manufacturing facility of 12 MnT in Karnataka. Availability of iron ore in the local market would mean the company will be able to increase its production and at the same time benefit on account of cost savings in terms of raw material.

Quantity in MnT
Source: SteelMint

Product prices
Indian steel prices have increased significantly during Oct-Dec. According to steelmint, average HRC (2.5mm) prices during Oct-Dec ’17 stands at INR 39,160/MT ($610) against INR 35,000/MT ($545) in Q1 and INR 37,500/MT ($585) in Q2. This increase in price of flat products during Q3 can be attributed to falling steel exports from China and increased raw material costs, majorly high coking coal prices in the international market.

The average price of company’s long product, rebar (12mm) prices in Oct’17 and Nov’17 and Dec’17 (till date) stands at INR 35,200/MT ($550) against INR 34,700/MT ($542) in Q1 and INR 33,700/MT ($526) in Q2. This increase in long products prices in Q3 can be attributed to increased exports of long steel and billets.

Prices mentioned above are quoted as basic prices and extra GST of 18% will be applicable
Source: SteelMint

Exports

JSW Steel is country’s one of the largest steel exporter. With the improved overseas demand for steel, it is expected that the company’s steel exports are likely to increase in Q3 FY18. India’s steel exports in Q1 stands at 2.16 MnT, in Q2 it is 2.52 MnT whereas in Q3 (till Nov’17) it stands at 1.64 MnT.

Quantity in MnT
Source: SteelMint

Challenge ahead
The only challenge that is posed before JSW Steel is rising key raw material; coking coal prices in the global market. India is not a self-sufficient country in terms of coking coal and thus, the company has to rely upon imports to meets its requirement. The international coking coal prices were increased as much as 200% in Jan’17 and have not seen any revision since then. The coking coal prices from China has reached its peak in Nov’17. However, its impact is likely to be seen only in the upcoming quarter of Q4 FY18 as the companies maintain a buffer stock of 40 to 45 days.