Steel firms to see lower profit
Mumbai, July 11: India’s steel majors are expected to see lower volumes during first quarter of financial year 2011 compared to the fourth quarter of FY10. This is because domestic steelmakers were too late in responding to cheaper imports, and traders gained some market share.
Apart from volumes, markets also see margins taking a hit as cost of raw materials — coal and iron ore, have risen. On an aggregate, most research houses expect profits for the sector to drop by 15-30 per cent compared to the previous quarter. JSW Steel, Tata Steel and Hindalco seem to be favourite companies for most of the brokers.
Mumbai-based Edelweiss expects Indian steelmakers to record drops of 18-32 per cent in operating profit and net profit compared to Q4 FY2010. Compared to last year, the figures would look better, but that’s because of the low base. The brokerage anticipates inventory pile-up with the steel firms.
The past few weeks have seen Indian steel prices falling, because of surge in imports from China, says Angel Broking.
In June, SAIL cut prices by Rs 3,000 per tonne. However, volumes for Indian firms are expected to fall as they were late in responding to the import surge, says the broker.
Amongst the various steel manufacturers, JSW is likely to be the worst hit, says IIFL, because of the non-integrated nature of operations. The full impact of the price cuts and rising costs will be visible in the second quarter of the fiscal, the broker adds.
Manufacturers of non-ferrous metals such as aluminum, copper and zinc would also see margins taking a hit because of a 5-10 per cent drop in prices.
Hindustan Zinc and Sterlite are likely to witness a steep decline versus the previous quarter because zinc prices have fallen 12 per cent during the quarter but costs remain the same.
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