Metals companies are projected to report divergent performance for the three months ended September (Q2FY25) with ferrous metals seeing a significant drop in profits while non-ferrous metals gain sharply from firm prices.
Going ahead, ferrous metals may see a rebound with an easing cycle in the US and policy measures being taken by China, particularly to support its struggling real estate industry, aiding domestic consumption.
Ferrous metals companies were hit by a decline in prices due to increased imports from China and lower domestic demand due to higher rainfall. In Q2, domestic prices of hot rolled coil steel fell by about 10% year-on-year to ₹50,900 per tonne, said a Kotak Institutional Equities report dated 4 October.
Domestic firms’ export performance was also affected by increased exports from China. According to Kotak, the average realization of Indian steel makers is estimated to have declined by 5.2% year-on-year, whereas volumes have risen barely 0.4%. The impact of price drops on the companies is lesser owing to a better product mix.
While coking coal prices also fell year-on-year, a sharp increase of 15% in NMDC iron ore prices negated any cost gain for the industry. Among individual companies, JSW Steel Ltd is projected to clock an Ebitda drop of 42% year-on-year, hit more because of its focus on flat products, and Steel Authority of India Ltd by 29%, as per a Motilal Oswal Financial Services report.
While Tata Steel Ltd’s Ebitda from Indian operations may drop year-on-year, lower losses from European operations should help the company report consolidated Ebitda growth. Tata Steel has the highest Ebitda margin of about 20% due to access to iron ore mines, which brings down its cost of production apart from reducing the impact of price fluctuations on its margins.
Also Read: India’s steel prices plunge to four-year low, most affordable since covid-19
Non-ferrous pack
Non-ferrous companies appear better placed with higher prices and lower cost of production. Average LME prices of aluminium, zinc and copper were 10-15% higher year-on-year in Q2. The decline in the cost of coal with higher domestic production helped bring down their cost of production. Motilal Oswal report projects aggregate Ebitda for non-ferrous companies to rise by 30%.
Among individual companies, National Aluminium Co. Ltd’s (Nalco) Ebitda is expected to more than double, boosted by 51% increase in prices of alumina, an intermediate product in the aluminium value chain. While Hindalco’s domestic Ebitda is projected to grow by 48%, a stagnant performance by Novelis, its overseas subsidiary, brings down consolidated growth to 17%.
Despite an impressive performance, non-ferrous metals remain vulnerable to significant volatility. Prices declined sequentially but firmed up again towards the end of the quarter.
The expectation of a strong performance is reflected in non-ferrous companies’ stock performance. Nalco is up by over 20% in the last one month, whereas Hindalco rose about 8%. The Nifty Metal index also gained over 7% in the last month, even as the Nifty50 index has recorded a marginal drop, with an improved global outlook.
Axis Securities pointed out that ferrous metals have already seen a rebound, with prices in China rising from an average of $460 per tonne in September to $510 per tonne. However, this may still be early days. A less-than-projected impact of stimulus measures can cap domestic firms’ performance.
Also Read: Steel prices dip to the lowest in 3 years, hurt by Chinese oversupply
