Posted on 20 Aug 2024
Morning Brief: India's tier-1 mills found it an uphill task in the first quarter of financial year 2024-25 (Q1FY'25). Production and sales both fell q-o-q for four of these major mills amid an imports onslaught from China, a moribund exports market and sluggish domestic demand and subdued steel prices on a quarterly basis. BigMint takes a look:
Production falls amid production callibration
Crude steel production took a major hit in Q1 for four tier-1 mills. Many of them opted for maintenance schedules and a resultant production calibration in tune with the low demand trend.
Overall, crude steel production in Q1FY'25 was at nearly 36 mnt while consumption lagged behind at 34 mnt.
On a q-o-q basis, JSW Steel reported a 7% decline in Q1FY'25. Its performance was impacted by lower volumes due to maintenance shutdown at Dolvi and Bhushan Power & Steel (BPSL) and inventory losses.
Tata Steel showed a 2% q-o-q dip amid elections and heat waves conditions, as per its results release.
SAIL also reported a 7% decline while AM/NS India's dropped nearly 6% due to planned maintenance shutdowns, which impacted both production and shipments.
JSPL maintained its volume with no q-o-q change. Steel production remained stable in Q1FY'25 amid slightly improved sales.
Sales fall as imports pose an obstacle
The sales performance was poor, falling in the vicinity of 10% for three of the major mills, giving a strong indication of the challenges the steel sector grappled with in Q1FY'25. One was the strong imports influx which had a major impact on domestic sales. BigMint data reveals, imports of hot rolled coils and plates were up 68% in Q1 y-o-y at 1.93 mnt and 48% y-o-y over January-June 2024 but were only 5% down compared to Q4FY'24. China's aggressive export pricing and huge volumes from Vietnam spoilt domestic sales opportunities. Secondly, exports were a no-show with offers on hold since May. Thirdly, domestic sales failed to rebound as anticipated, post-elections, mainly on account of imports. Plus, the monsoon rains dampened demand for construction steels.
JSW Steel posted a significant 10.5% q-o-q drop in sales in Q1. Its share of export sales fell to 10% during the quarter due to weak international markets against 15% in CPLY and 20% in the previous quarter.
Tata Steel recorded a 9% decrease in sales with export volumes exhibiting a notable decline, dropping 62% q-o-q to 0.19 mnt in Q1FY'25 from 0.5 mnt in Q4FY'24. On a y-o-y basis, exports declined by 24%, down from 0.25 mnt in CPLY. Sales were also impacted by the pre-election lull and heat wave conditions.
Sales volumes at SAIL fell a steep 12% q-o-q amid imports and export challenges.
At JSPL, however, sales increased 4% q-o-q. Revenue growth was primarily driven by increased sales of hot strip mill (HSM) products.
AM/NS India's sales volumes in 2QCY'24 (it follows the calendar year) declined by 6% in 1QCY'24, primarily due to planned maintenance impacts on production and shipments.
EBIDTA a mixed bag amid subdued steel, raw material prices
The earnings before interest, taxes and depreciation and amortisation (EBIDTA) were a mixed bag in Q1 amid subdued domestic steel prices. Trade-level HRCs, ex-Mumbai, remained almost flat in Q1 compared to Q4FY'24 whereas BF-grade rebar rose a minuscule 5% q-o-q. Raw materials also failed to keep prices supported. Odisha iron ore fines index (Fe62%) fell 7% q-o-q and coking coal (premium HCC) by 20%.
Thus, Tata Steel's EBITDA per tonne fell 7% q-o-q to INR 14,235/t ($170/t) in Q1FY'25 and 11% y-o-y. JSW Steel's EBIDTA/t rose 8% q-o-q to INR 8,400/t ($100/t) but fell 15% y-o-y. It said in a release, "Domestic flat steel prices increased in April and May but declined in June due to low-priced imports from China and FTA countries." Net sales realisations (NSR) at Indian operations fell 5% y-o-y on lower domestic steel prices, but were up 1% q-o-q on better product mix.
SAIL's EBIDTA/t dropped 28% q-o-q to INR 6,035/t ($72/t) but was up 12% y-o-y indicating its steady core performance. However, revenue from operations was affected by a decline in net sales realisation (NSR) in the domestic steel market due to cheap imports.
JSPL's rose both q-o-q (8%) and y-o-y (7%) to INR 13,527/t, ($161/t) mainly on account of higher sales and realisations and cost efficiency.
AM/NS India's EBITDA during 2QCY'24 declined to $237 million as compared to $312 million in 1QCY'24, driven by a negative price-cost effect and lower shipments as well as lower average steel selling prices.
Outlook
Domestic steel consumption is anticipated to grow in the third and fourth quarters of the current fiscal, driven by both traditional and emerging sectors. Additionally, ongoing government investments in infrastructure, as announced in the latest Union Budget, are expected to bolster growth. Keeping these factors in mind, mills may have a positive outlook on the domestic market and remain focused on increasing production.
The challenges posed by cheaper imports are expected to be addressed by the government in the near future.
Where exports are concerned, the overall global economic sentiments remain subdued with customers maintaining a "wait-and-watch" stance and no restocking yet apparent.
With several countries looking to counter exports from India and other destinations with anti-dumping measures, overseas sales may continue to be a challenge over the long term.
In terms of raw materials, there are expectations of further benefits from lower coking coal and iron ore prices in the next quarter (July-September).
Source:BigMint
