Tata Steel: Steel manufacturers margins will come under pressure in the second quarter, strong rebound in H2: TV Narendran

He said that margins of domestic steelmakers will remain under pressure in the second quarter despite lower input costs as they carry more expensive inventory that will now be liquidated. Narendran TVGeneral Director, .

The benefits of lower coal prices will only be reflected in the third quarter of this fiscal year, Narendran told ET in an interview on Tuesday, setting the stage for a strong performance in the second half.

He said that while the imposition of a 15% export duty in May had hurt the steel industry, the impact on Tata Steel was not very significant as the company had a low exposure to exports.

“And this is where Tata Steel has benefited because we were not so dependent on exports,” he said. “So for us to find a home market for some of that volume (exports) it wasn’t a problem and we didn’t have to cut any production.”

Several other leading steel mills have advanced shutdown maintenance work until June this year to cut production.

The CEO of Tata Steel also said that bullion prices should remain stable at current levels. The price of standard hot rolled steel has steadily fallen from a peak of Rs 78,800 per ton in the first week of April to Rs 59,600 per ton as of last week.

Our quarter has been good but at these prices, many (steel manufacturers) have cut production. Even the Chinese steel companies “They lose money at these prices,” Narendran said. “We are close to the bottom.”

He said buyers who had been hoarding their stocks and delaying purchases in anticipation of price cuts had returned to the market.

Analysts at

However, they have assigned a “Discount” rating on Tata Steel’s stock due to downside risks from lower steel prices.

We will continue to emphasize the inappropriateness of earnings-based analysis in the sector. The main upside risk is the continued elasticity of steel prices. Analysts also wrote that eliminating export duties is largely included in the price.

Analysts pointed out that the decline in steel prices may limit the company’s practice of reducing debt.

The company gave guidance to reduce its net debt by $1 billion each year and was able to use the current commodity cycle to reduce its debt to an EBITDA ratio of less than 1.

“Our $1 billion debt reduction target for this year is in place because we believe the second half will be much better,” Naridnran said. “We also believe that a lot of the capital, which is stuck today in working capital, will be released during the remainder of the year.”


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