Beginning January, companies have announced an increase in prices from Rs 1,000-Rs 4,000 a tonne and the expectation is that more could be in store in the coming weeks after NMDC
announced a revision in prices of iron ore lumps and fines on Wednesday.
The market is also anticipating a strong set of numbers from steel companies for the third quarter. Production numbers announced by JSW Steel
and JSPL, so far, show an increase in production levels, both quarter-on-quarter (QoQ) and year-on-year (YoY).
announced on Thursday that it had achieved crude steel production
of 4.08 million tonnes in Q3FY21, an increase of 6 per cent QoQ and 2 per cent YoY. The company’s average capacity utilisation improved from 86 per cent in Q2FY21 to 91 per cent for Q3FY21.
JSPL, on the other hand, recorded its highest ever production and sales in December 2020; its steel production
increased 20 per cent YoY to 1.93 million tonne in Q3FY21 while sales increased 12 per cent YoY to 1.88 million tonne in Q3FY21.
Even though the prices of iron ore – a key input material – have been at elevated levels, the margins for major steel producers are expected to improve significantly, as steel companies increase prices.
According to data from SteelMint, prices of hot rolled coil (flat) increased by about 48.3 per cent to Rs 55,250 a tonne (YoY), rebars (long) by 48.6 per cent to Rs 55,000 a tonne.
However, prices of iron ore fines ex-Odisha increased 149 per cent to Rs 6,350 a tonne and lumps by Rs 89.2 per cent to Rs 8,800 a tonne; the price of NMDC
fines increased 58.4 per cent to Rs 4,610 a tonne and 62.4 per cent to Rs 6,040 a tonne.
But margins are still expected to be good as coking coal – the other major input material – has been depressed due to geopolitical issues.
Isha Chaudhary, director, Crisil Research, expects EBITDA margins for large steelmakers to rise by 500-600 bps year-on-year in Q3FY21 on the back of robust realisations and volumes as the steel industry sharply recovered from its Covid slump.
have risen by 30 per cent on-year in Q3 coupled with healthy steel demand
(Oct-Nov’20 – 8 per cent on-year), leading to a robust top line growth for the quarter,” Chaudhary said.
Players with captive iron ore access are likely to benefit more as merchant domestic iron ore prices have increased by over 50 per cent on-year (Q3FY21) which will weigh down on the profitability of non-captive iron ore steelmakers.
“However, coking coal which is a larger part of the raw material cost has corrected by 23 per cent during the same period, thereby providing a further push to margin expansion,” she said.
Since the unlocking, the sector has been on the rebound. An ICRA analysis suggested that the operating margins improved sharply on a QoQ basis to 21.5 per cent in Q2FY21 from 10.3 per cent in Q1FY21 (15.4 per cent in Q2FY20) on account of a spurt in sales volumes and softer input costs.
The third quarter is expected to be even better and the trend is expected to follow through in the fourth quarter as well, a typically strong quarter.
As JSPL Managing Director, V R Sharma said, “H2 will be better than H1.”
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.