Lower realisations, higher raw material cost to adversely impact steel firms’ margins

New Delhi, July 14 : Margins for steel companies are expected to decline QoQ in 1Q, JM Financial Institutional Securities said in a report.

Recent correction in Coking coal prices is likely to aid spreads for steel majors from 2QFY24.

Metal names have reacted positively to anticipated demand uptick in China, even as demand greenshoots are yet to be seen on the ground, the report said.

Ferrous companies are likely to report sequentially lower spreads on account of lower realisations and higher raw material costs, the report said.

Volumes across steel companies are expected to come lower sequentially, primarily on account of seasonally strong base.

Net realisations during the quarter are likely to witness an average decrease of Rs 1.2k/t QoQ while coking coal costs are likely to increase by $10-15/t QoQ.This will result in an average Rs 2.2k/t decrease in margins.Lower realisations will adversely impact margins in non–ferrous space, the report said.

“We expect the non-ferrous companies to be adversely impacted by sequentially lower realisations”, the report said.

Hindalco will likely witness sequentially lower margins during the quarter with Indian operations expected to be adversely impacted by lower realisations while Novelis spreads are expected to improve sequentially to $452/t aided by higher realisations post activation of inflation clauses and sequentially lower costs.

The impact of can segment destocking is expected to sustain for 1-2 quarters.We therefore expect Novelis volumes to decline sequentially by 2 per cent.We expect Hindustan Zinc EBITDA to decrease by 21.2 percent QoQ primarily due to lower realisations.

san/ksk