Steel industry
Steel makers plan to trim prices of steel by about Rs 600 per tonne following the 2 per cent cut in excise duties.But that’s unlikely to result in a spurt in orders from the real estate or automobile players though players in the infrastructure space may be willing to buy more.

Until there’s a full-fledged revival in demand, companies will have to live with low realizations-prices have fallen sharply by around 30-40 per cent since August last year and now range between Rs 32,000 and Rs 36,000 per tonne. That’s what caused JSW Steel (standalone) to report losses before tax of Rs 139 crore in the December 2008 quarter. This number doesn’t include foreign exchange losses. Of course, the company also sold a smaller amount of steel-it had actually scaled down production by 20 per cent and therefore revenues remained flat. In fact, others too netted lower realizations as a result of which sales at Tata Steel, for instance contracted 3.5 per cent while SAIL’s revenues were down 6 per cent.

Sector Specific - Steel Industry                

High raw materials continued to pressure operating profit margins (opm) at JSW Steel-the opm was down by about 1400 basis points to 15.3 per cent. Tata Steel’s margins too came off by about 1200 basis points, though of course they were far higher at 30 per cent.

In the current year Tata Steel is expected to post sharply lower profits compared with the Rs 7,700 crore reported in 2007-08, with its overseas subsidiary Corus expected to report only a small surplus. Analysts are also forecasting a fall in profits in the following year and that’s why the Tata Steel stock is quoting at a price-earnings multiple of less than 3 times estimated earnings in 2009-10. JSW Steel’s net profits too are tipped to fall this year from the Rs 1,728 earned in 2007-08. However, since the company is not as exposed to the overseas markets as Tata Steel is, a revival in demand at home could mean better operational profits in 2009-10. Nevertheless the company could continue to incur foreign exchange losses and that could hurt the bottom line.
source - BS

Steel Industry
The steel cluster of Mandi Gobindgarh in Punjab expects to gain from the impetus given by the Government of India and the state governments in the north to infrastructure development during the financial year 2009-10.
The steel units of Mandi Gobindgarh have been adversely affected in the last quarter from the delays in execution of many proposed housing and infrastructure projects during the present slowdown.

The slowdown was to some extant made up by the revival of ship-breaking industry in India as the steel scrap available was cheaper than the imported ones.
JP Goyal of Bhawani Industries Limited told Business Standard that the units supplying to automobile manufacturers were hit more than the others as their payments have been locked for the moment. He added that those making TMT Steel, alloy steel and castings were able to protect their bottomlines even in the wake of the recession.
Goyal supplies TMT steel, alloy steel and exports steel castings to the USA, the Netherlands and Australia.

Steel Industry (updated - 19 Mar 2009)
With demand for steel picking up in the last couple of months steel makers now sound a little more confident about prices stabilising in the home market. SAIL’s volume sales in February were up 9 per cent at 1.17 million tonnes and although the company is yet to renegotiate fresh contracts for coal, these are expected to be at substantially lower prices. Unless demand sustains though, some of this benefit may be passed on to consumers in the form of lower prices and as such average realisations in 2009-10 may well be lower than they’re expected to be in 2008-09. So the worst may not be over yet. The same is true for Tata Steel.

According to Macquarie, the firm’s European operations will continue to operate at 60 per cent capacity till June this year since demand remains weak and inventories high. While fresh contracts for key inputs as also other savings will bring some succor, they could be offset by lower volumes and realisations. Back home, Tata Steel may have trouble finding demand for enhanced capacities though it should sell better volumes in 2009-10. While JSW Steel should gain from lower prices of both iron ore and coking coal, net profits could fall sharply in 2009-10 because of lower volumes and prices.

“No doubt, businesses have been affected, but the proposed expenditure in infrastructure development aimed at generating employment in the country would give a big push to our units.” Gupta foresees a bright future and plans to diversify into value-added products in steel and hopes to make fresh investments in the next financial year.
“With the prime lending bank rates cut and the availability of raw material (steel scrap and furnace oil) at the aviable price we hope to create a strong base for the future,” he said. The substantial fall in the steel prices and the abolition of import duty on steel scrap helped the units to stay afloat despite the slackening demand in the last quarter.

Sudhir Goyal of Madhav Udyog Pvt Ltd said that the volumes were slashed and margins squeezed in the last quarter and in the current quarter. But the release of additional liquidity by the Reserve Bank of India, coupled with the thrust of the government on infrastructure development keeps their spirits up. “Due to good credit rating we are being approached by bankers for fresh lending. We are open to expansion and would go for fresh investment once we get the order in hand and we are quite optimistic to do better once the Lok Sabha elections are over.” The units in Mandi Gobindgarh, some of which are over 50 years old are now mulling technological upgrades. As the command of business has shifted from old generation to new professionally qualified young entreprenuers. Keeping in perspective the correction in the prices of most inputs and easy availability of credit many of them envisage to upgrade their small businesses and consolidate their existing ventures.
source - BS

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