Sub-par monsoon augurs well for domestic players

A lower-than-estimated rainfall in the July-September quarter has augured well for the domestic steel industry which saw an improvement in its capacity utilisation, indicating a strong volume growth for the quarter.

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

Set up on the lines of the UK’s The Steel Construction Institute, INSDAG 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 metals 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 average 55 per cent in the same period last year,” said Banerjee.

Delhi-based Jindal Steel & Power, Tata Steel, Sajjan Jindal-led JSW Steel, stateowned Steel Authority of India and Rashtriya Ispat Nigam are some of the leading 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,” said Banerjee.

Brokerages, too, are of similar view at least for companies like JSW Steel and Tata Steel.

For JSW Steel, an expected volume growth of 2 per cent on a year-on-year basis and 22.4 per cent higher realisations will aid in Ebitda growth in a seasonally weak quarter, said an Edelweiss Securities report.

Tata Steel, too, is expected to post a higher Ebitda owing to flattish realisations, and a marginal volume growth because of 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,” said 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 ~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 a Prabhudas Lilladher report. The muted volume growth is because of outage at the Bhilai Steel Plant, said brokerages.

Domestic steel industry saw an improvement in its capacity utilisation, indicating a strong volume growth for the quarter