Steel companies to ride export uptick, report volume recovery in fourth quarter

Steel players with relatively higher reliance on exports are likely to benefit from better realizations because, in select overseas markets, realizations were a tad bit better. Tata Steel Europe though will report an EBITDA per tonne loss as coking coal cost reduction sequentially is likely to remain insufficient to overcome the drop in realizations. Additionally, Tata Steel European volumes are lower by around 10 percent year on year (YoY) though they were a bit higher on a sequential basis. The most critical factor to track for the ferrous companies is the EBITDA per tonne and there is a steady improvement sequentially.

Investor access that for companies with higher long exposure like JSPL as well as SAIL, they expect a spread expansion of around Rs 1,500 per tonne. This has rebar prices stand challenged due to holidays, monsoons as well a working capital crunch that was witnessed in several infra projects.

Most analysts are not too optimistic about JSPL’s EBITA per tonne improvement due to a lower uptick in prices, and on the back of a hit of higher raw material costs as well. The street will also be waiting for a commentary on demand and supply dynamics in the global steel environment. How expansion plans are progressing, particularly on JSPL, as they have a big ambitious plan that is underway, the capex of all companies as well as deleveraging targets for the coming year will be watched out for. Also, reports have indicated that the JSW group plans to enter the auto space. Therefore, need to track if the listed entity has any role, whatsoever, to play in that direction.

While, talking about Tata Steel, in an interview with CNBC-TV18, Ashish Kejriwal, Director Research-Metals and Mining at Nuvama Institutional Equities said that the Q3FY23 of Tata Steel was weaker than peers and the stock also has been underperforming for the last 1 year.

“Tata Steel, Q3 (FY23) was somewhat weaker than what other steel producers reported. And it's not because of their gross margins, it's because of their other expenditure, which was somewhat higher than what we expected, or the street expected. So that anomaly will get corrected in Q4 and Tata should report Rs 14,000 per tonne plus in Q4 and that should lead to a somewhat higher uptick in the stock price also because, in the last year, it has been somewhat underperformer because of Europe,” Kejriwal said.