Steelmakers are expected to see a jump in their profits

Domestic steelmakers are set to see a sharp jump in their profits and outperform their non-ferrous peers in January-March as they benefit from product prices picking up because of robust demand. While the bottomline will be moderated because of high coking coal costs and a jump in iron ore costs for non-integrated players, it will still be the strongest sequential growth for these companies in 12 quarters.

January-March quarter is traditionally a strong quarter for steel producers. Apart from the seasonality benefit, lower production in China because of environmental constraints and technical snags at plants of some of the local steelmakers helped push up prices of the alloy.

The rates of long steel products are approximately at Rs 6,700 per tonne or 21 per cent higher compared with October-December, while those of flat product prices have risen by 13 per cent or Rs 5,000, Motilal Oswal Securities said in a report.

Tata Steel’s product portfolio consists of about 40-45 per cent of long products, which will help it fare better than peers who have a higher proportion of flat products in their portfolio. The steelmaker’s access to captive iron ore mines will not only protect its margins from being eroded because of a 22-23 per cent hike in ore costs; but also offset the slight decline in production during the quarter. Tata Steel sold 3 million tonnes steel on a provisional basis in JanuaryMarch, marginally lower than 3.2 million tonnes in the year-ago period and 3.3 million tonnes in October-December.

Jindal Steel and Power is seen faring the next best among steelmakers, as it benefits from higher capacity coming on board at Angul.

Steel Authority of India is the other major steelmaker in India, which could probably see the sharpest growth in net profit sequentially, but analysts are not too confident of the company’s earnings.