Indian primary mills' Q3 EBIDTA drops on cost push

• Q3 EBIDTA sees a drop for India's five primary mills
  
  
• Higher coal and power costs squeeze margins
  
  
• Exports drop on lacklustre overseas demand
  
  
• Sales mainly down on low demand
  
  

Morning Brief - The third quarter, which follows the damp monsoon period, is traditionally better, in terms of demand. However, some of the challenges, like the coal inflation and semi-conductor shortage were carried over from the previous quarter, although India's apparent steel consumption increased 13% q-o-q on the back of the economy's recovery post-the third wave of the pandemic and the government's sustained infra push. Exports were a damp squib.

The EBIDTA dropped for all five, possibly due to the elevated coking coal prices and power costs and lower steel prices. Domestic iron ore prices during Q3 were lowers in line with global indices, which partly offset the cost push, although the mills have a strong captive dependency.

SteelMint takes a look at the Q3 performance of India's five primary mills.

Crude steel production

SAIL: This public sector behemoth reported its "best-ever" crude steel production of 4.53 million tonnes (mnt) in Q3FY'22 compared to 4.47 mnt in Q2, up a marginal 1.3% q-o-q. Crude steel output in 9MFY'22 was at 12.77 mnt against 10.66 mnt in the corresponding period last fiscal. SAIL's production through the blast furnace route comprises almost 99%, with the remaining via EAF.

Tata Steel: This steel major's crude steel production inched up 2% to 4.81 mnt in Q3FY'22 as against 4.73 mnt in Q2FY'22. On an annualised basis, output moved up 4% against 4.60 mnt in Q3FY'21.

JSW Steel: Crude steel production of this integrated major in Q3FY'22 was reported as the highest ever at 4.41 mnt, up 8% against 4.10 mnt in Q2FY'22. In its recent investors' call, the steel major said increase in the capacity utilisation rate to 94% from the existing operations and production volumes of 0.18 mnt from its recent Dolvi phase II expansion contributed to a rise in production volumes.

Flat steel production stood at 2.98 mnt in Q3 against 2.79 mnt in Q2 and long steel production at 0.93 mnt compared to 0.92 mnt in Q2.

Bhushan Power and Steel Ltd (BPSL), now a JSW Steel subsidiary, recorded its crude steel production at 0.64 mnt in Q3FY'22, down 7% as against 0.69 mnt a quarter ago. While sales too dropped 24% to 0.58 mnt in Q3 versus 0.76 mnt in Q2.

JSPL: Jindal Steel and Power Limited (JSPL) recorded Q3FY'22 crude steel production at 1.96 mnt, marginally up q-o-q compared to 1.93 mnt in Q2. Its second highest quarterly production was at 2.01 mnt in Q1 and the previous high was 2.07 mnt in Q4FY'21. However, the steel major is confident of achieving its yearly target of 8-8.5 mnt of crude steel based on its resilient performance in H1 and in anticipation of demand from construction and infrastructure picking up. During 9MFY'22, production volumes stood at 5.90 mnt, up 30% against 5.43 mnt seen in the corresponding period last year.

AM/NS: Integrated steelmaker ArcelorMittal Nippon Steel (AM/NS) India recorded 1.85 mnt of crude steel production in Q4CY'21, down 2% against 1.89 in the previous quarter. Aditya Mittal, Chairman, AM/NS India, said, "We are getting more out of our existing operations at Hazira through debottlenecking and are on track to achieve 8.8 mnt capacity by the end of next year..." During CY'21, production stood at 7.39 mnt.

Sales

SAIL: The company did not mention its saleable steel sales in Q3, although this rose 22% to 12.46 mnt in Apr-Dec'21. SAIL had a sales guidance for FY'22 at 16-16.5 mnt and is hopeful of achieving the same.

Tata Steel: The steel major's sales volumes touched 4.42 mnt in Q3FY'22 compared to 4.58 mnt in Q2FY'22, down 3% q-o-q. Steel deliveries declined 5% on y-o-y against 4.65 mnt in Q3FY'21.

Tata Steel Long Products steel sales dropped q-o-q to 164,000 tonnes in Q3FY'22 against 168,000 t a quarter ago due to planned shutdowns. On a yearly basis, the same edged down by 2,000 t against 166,000 t seen in Q3FY'21.

JSW Steel: Saleable steel sales were at 4 mnt, up 6% q-o-q compared to 3.79 mnt in the previous quarter. Demand from automotive, solar and appliances increased. Sales of flat steel products were at 3 mnt, while long product sales stood at 0.88 mnt. JSW Steel's sales of semi-finished were recorded at 0.12 mnt in Q3. Domestic automotive steel sales edged up 2% q-o-q while domestic automotive steel production edged down 10% q-o-q.

JSPL: During Q3FY'22, the steel major, on a standalone basis, reported sales of 1.82 mnt, a drop of 15% q-o-q as against 2.13 mnt in the previous quarter. On an annualised basis, sales volume dipped 3% against 1.87 mnt in Q3FY'21. In Nov'21 demand for steel was good. However, in Dec'21 due to Omicron and lockdowns coupled with rains in southern India steel demand saw a downtrend. MSME's and others slowed their purchases anticipating that if the government implements a lockdown, labour issues will arise.

AM/NS India: Steel sales volumes dipped 2% to 1.73 mnt in the quarter under review (Oct-Dec'21) against 1.77 mnt in the previous quarter.

Exports

Tata Steel: The company reported Q3 export volumes at 0.50 mnt against 0.71 mnt in Q2, down 30% q-o-q. The drop could be attributed to a quiet overseas market, especially Europe.

JSW Steel: The company reported a sharp decrease in its export volumes q-o-q because of increased sales in the domestic market.

Export sales accounted for 15% of total sales in Q3FY'22 against around 30% in Q2.

JSPL: It sold more domestically thanks to a subdued overseas market. However, the steel major aims to maintain an export target of 28-30% of total sales, SteelMint learned from the company's investor call.

EBITDA

SAIL: The PSU major reported an EBIDTA of INR 3,659 crore in Q3 against INR 7,248 crore in Q2.

Tata Steel: The steel major achieved standalone EBITDA of INR 12,434 crore in Q3FY'22.

JSW Steel: The Q3 operating EBIDTA touched INR 6,797 crore, down 22% q-o-q compared to INR 8,673 crore in Q2, with an EBITDA margin of 23.6%.

JSPL: The EBITDA dropped by around 30% to INR 3,168 crore in Q3 in comparison to INR 4,519 crore in Q2. On a y-o-y basis EBITDA edged down 19% compared to INR 3,908 crore in Q3FY'21.The company saw an increase in inventory levels due to unavailability of rakes and logistical barriers such as availability of trucks and trailers.

AM/NS: EBITDA fell by 21% to $435 million during the period against $551 million in Q3 primarily because of steel prices and higher coal and power costs.

Outlook

Indian steel prices look supported by two factors. One is the cost push from expensive raw materials. Secondly, with demand strong in China, prices there and globally will likely show a northward movement, which would prop up Indian prices.

Demand in Q4 is also slated to be good, bolstered by infra spending, consumer demand and restocking in the agri segment. The outlook on exports is bullish too with global demand trending upwards as economies recover from Omicron.