Improvement over sequential quarter likely

Metal manufacturers are likely to report a decline in sales and profit in the first quarter ended June 2009 largely due to a rise in production cost and lower demand. However, the good news is that the sector is set to show a modest rise in sales and profit over the sequential quarter ended March 2009 led by price hikes and a rise in local demand.

According to a metal analyst at Angel Broking, the June quarter has witnessed a recovery in steel consumption, aided by increased spending on the infrastructure sector and revival of auto sales. This is reflected in the strong sales numbers reported by domestic steel companies. Prices of base metals have witnessed a huge rally and recovered by a substantial 35-50 per cent from their recent lows mainly due to heavy buying by Chinese players.
 

IN THE NEGATIVE ZONE (Q1 expectations: Ferrous & non ferrous metals)
	Year-on-year growth rate in %

Net
salesOperating
profitNet
profit Ferrous Jindal Steel & Power-5.07-10.32-11.84 JSW Steel0.22-14.02-37.73 SAIL-11.17-33.77-33.15 Tata Steel (Standalone)-12.75-42.27-47.54 Tata Steel (consolidated)-43.61-64.16-90.68 Welspun Guj Stahl37.8022.7318.16 Non Ferrous Hindalco-21.63-47.31-58.14 Hindustan Zinc-16.84-32.07-25.96 Nalco-22.40-65.60-64.69 Sterlite Ind-20.18-46.04-48.23

The sector has witnessed a 3 per cent increase in the prices of flat products in June. The prices of long products had increased in April and May but fallen in June as construction activities slowed down due to the advent of monsoon. Costs of key inputs such as iron ore and coking coal are expected to dip drastically for steel companies as per the new annual contracts.

There was some relief for base metal companies with LME prices rising sequentially. Though all base metal prices were still down year-on-year (y-o-y), prices of copper, zinc and lead increased by around 26-36 per cent over the sequential quarter. Aluminium prices also increased 9 per cent.

Integrated steel manufactures are expected to post a 16 per cent decline in net sales due to a poor show by Tata Steel. Net profits of almost all steel companies are expected to decline by over 45 per cent due to decline in product prices and high cost of inventory. The standalone Tata Steel is expected to post a 12 per cent decline in sales and 40 per cent fall in net profit. However, the net profit fall will be steep at 60-66 per cent for the consolidated Tata Steel.

However, according to CLSA Research, the standalone Tata Steel may post a 59 per cent decline in y-o-y profit, but is likely to record a 9 per cent rise over the March quarter. JSW Steel too is likely to report sequential improvement in profitability due to improved steel demand and stable domestic prices during the first quarter. Steel Authority of India (SAIL), CLSA Research says, is expected to report decline in profits both y-o-y and quarter-on-quarter (q-o-q) due to wage-related provisioning.

Owing to a 25-30 per cent decline in prices of aluminium, copper and zinc, non-ferrous manufacturers are expected to post a 15-20 per cent decline in net sales and a 45-65 per cent decline in net profit. Hindalco and Sterlite Industries are likely to post a 20 per cent decline in net sales and over 50 per cent decline in net profit each.

Sterlite, which has largely shut down Balco smelter I, is expected to gain from the sale of excess power. Hindalco and Nalco are also likely to report better q-o-q numbers on the back of increase in LME prices.