Steel Companies Cheer on Better Utilisation in Lean July-September Quarter

Posted on: 20 Oct, 2018

The July-September quarter is typically a lean season for metal and mining companies, as construction activity comes to a standstill.


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A lower-than-estimated rainfall in the July-September quarter has augured well for the entire domestic steel industry, which kept its capacity utilisation much higher than usual, in turn indicating strong volume growth for the quarter.

“All the big players had their utilisation levels above 95 per cent in the July-September period, from an average 75-80 per cent last year (same time). Dry spells since mid-August has helped not just the large players but also the SMEs (small and medium enterprises),” said Sushim Banerjee, director general, Institute of Steel Development & Growth (INSDAG).

INSDAG, set up on the lines of UK's Steel Construction Institute, under the Ministry of Steel, primarily works towards the development of advanced design methodology and technical marketing by expanding applications of steel in different segments of industry.

The July-September quarter is typically a lean season for metal and mining companies, as construction activity comes to a standstill.

“The SMEs also enhanced their capacity utilisation to 65 per cent during the quarter, from an average 55 per cent in the same period last year,” said Banerjee.

Delhi-based Jindal Steel & Power, Tata Steel, Sajjan Jindal-led JSW Steel, state-owned Steel Authority of India and Rashtriya Ispat Nigam among others are some of the large steel producers in the country.

“Overall, we (industry) are expecting steel volume growth to be between 2-5 per cent in this usually lean quarter from last year,” informed Banerjee.

Brokerages, too, are of the similar view at least for companies like JSW Steel and Tata Steel. For JSW Steel, volume growth of two per cent is expected on year-on-year basis along with 22.4 per cent higher realisations, which will aid in EBITDA growth in a seasonally weak quarter, said Edelweiss Securities report. Tata Steel, too, is expected to post a higher EBITDA owing to flattish realisations, and marginal volume growth owing to integration of Bhushan Steel, it said.

“Since steel demand has been strong during the quarter, realisations too are expected to be higher even if increase in cost of production due to coal prices is taken into consideration. Steel prices moved up by 15 per cent in the July-September period,” informed Banerjee. “The SMEs saw their market share go up in the quarter as demand from rural and urban housing went up, while large government projects helped big players,” he added.

Prices set by the SMEs are about Rs 2,500-3,000 per tonne lower than that offered by large steel producers as the latter has to adhere to stringent quality standards which pushes up prices. SMEs are largely into long steel products as they do not have the required capabilities to make flat steel used in the auto industry.

For SAIL, volumes are expected to grow a meagre 0.9 per cent sequentially, said Prabhudas Liladhar report. Volumes of SAIL are seen muted owing to outage at Bhilai plant, said brokerages.

Source: Business Standard

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