JSW Steel says steel prices are falling faster than cost of production

JSW Steel — India's largest steelmaker by market value — is eyeing better profitability in the October-March period, as falling prices of the alloy continue to dent its earnings. Steel prices have stabilised, but input costs remain at elevated levels despite the recent correction, its management told CNBC-TV18.

The benefit of easing prices of coking coal and iron ore — key inputs in the steelmaking process — will be visible from the December quarter, said Seshagiri Rao, Joint Managing Director and Group CFO at JSW Steel.

"In this quarter, we expect steel prices to be stable at better volumes, and at the same time, costs are going to come down. With all these together, I think Q3 (October-December) and Q4 (January-March) will be much better than what you are seeing in Q2 (July-September)," he said.

The company expects its EBITDA per tonne — or how much a company makes per each tonne of its finished product — to improve sequentially in the quarter ending December 2021, Rao said without elaborating.

The remarks from the company brass come days after the alloy maker shocked the Street with a net loss for the July-September period owing to a sharp fall in steel prices.

Its EBITDA margin — a key measure of profitability — slumped to 4.2 percent in the quarter ended September, from 32 percent in the corresponding period a year ago.

Rao expects the price of coking coal, which has been volatile in the range of $200-650 per tonne, to cool off by another $80 in the October-December period from the current levels of around $300 a tonne. 

In the July-September period, steel rates fell by more than Rs 10,000 per tonne but the cost of production came down by about Rs 5,100 per tonne, he pointed out.

He expects a significant fall in costs along aided by the commissioning of a power plant.

"We have started our power plant which uses the blast furnace gas, which was getting flared in Q2," he added.