Riding high on the commodity price rally

Metal companies are expected to post a stellar performance in the March quarter (Q4FY21) on the back of higher realisations and strong volumes.

“We expect Q4 to be a blockbuster for ferrous with never-seen-before profitability with an uptick in realisation of ~5,500-6,000 per tonne and possibility of deleveraging to sustain along with higher mix of exports,” analysts at Edelweiss Research said in a report.

The spread between landed price of imports and domestic steel prices widened to 19 per cent in March from 2 per cent in October as domestic steel prices rose slower than global prices in Q4, said brokerages.

Exports jumped 126 per cent yearon-year (YOY) in March to 1.29 million tonnes (MT), compared with a monthly average of 0.65-0.75 MT in recent times.

“While exports of finished steel in Q1 were driven by lacklustre domestic demand, the surge in Q4 was led by higher export realisation,” explained CRISIL Research. Meanwhile, input costs have moved up with a sequential rise in iron ore and coking coal prices, but the rise is lower than the surge in steel prices.

“[Sixty-two per cent] of iron ore lumps are up 27 per cent quarter-onquarter, while pellet export prices have increased by 33 per cent. However, coking coal prices, primarily imported from Australia, have moved up by 17-19 per cent sequentially and are now trending lower again,” Emkay Global said in an update.

Tata Steel’s consolidated Ebitda in Q4 is expected to increase 48 per cent sequentially and 202 per cent YOY to ~14,052 crore. JSW Steel is expected to report Ebitda per tonne of ~19,000 as against ~14,444 a year ago.

SAIL’S net profit is expected to grow 29 per cent. Adjusted net profit is estimated to jump 1,100 per cent YOY.

“For non-ferrous companies, we expect their performance to be driven by higher base metals price and volume growth,” said Edelweiss Research. During the quarter, average zinc prices on London Metal Exchange (LME) rose 29 per cent YOY, while lead, aluminium, and copper were up 9 per cent, 24 per cent, and 51 per cent, respectively.

In Hindalco, “We expect the standalone Ebitda to increase 4 per cent sequentially on the back of higher LME prices. However, the full benefit of higher prices would not be realised due to hedging of 58 per cent of LME volumes at $1,716 per tonne," said analysts at Motilal Oswal Securities in a report.

Ebitda of Hindustan Zinc is seen increasing by 6 per cent sequentially and 76 per cent YOY, while Anil Agarwal-led Vedanta’s Ebitda (excluding subsidiary, Hindustan Zinc) is expected to improve by 13 per cent sequentially on the back of higher profit in aluminium, iron ore, and oil and gas segments, said Motilal Oswal Securities.

The outlook for base metal prices looks bullish, but tightening of monetary policy by China can be a spoiler.