Metal companies may post stronger Q1 on higher prices, better realisations

Higher steel and aluminium prices, better realisations and firm global metal trends are expected to support Q1 FY27 earnings despite higher input costs and softer volumes

Metal prices hardened in the April-June quarter (Q1) of FY27. Iron ore, aluminium and zinc were up, while hot-rolled coil (HRC) prices increased by Rs 5,000 per tonne on a quarter-on-quarter (QoQ) basis. So, the net impact on metal producers should be positive for Q1 FY27.

 

China imposed tariffs on US scrap aluminium, improving the supply of scrap in the US. This helps Novelis, Hindalco's subsidiary. India has initiated a new anti-dumping investigation into HRC imports from China, Japan and Russia. If dumping is established, it could result in country-specific anti-dumping duties.

 

The European Union has introduced a new steel safeguard framework, reducing overall tariff-rate quotas by 47 per cent while doubling the out-of-quota duty to 50 per cent across 26 steel products. For India, flat steel quota allocations declined by 41 per cent to 1.42 million tonnes, restricting duty-free access to the EU. Indian steel exports also face increasing costs of exporting carbon-intensive steel to Europe.

 

Among companies, Tata Steel may see better net sales realisation QoQ in India, while the partial shutdown of its Netherlands rolling mill may impact European performance. Tata Steel's consolidated sales volume may rise year on year (YoY), but decline QoQ. Consolidated revenue may increase YoY and QoQ due to higher HRC prices. EBITDA may rise YoY on higher India realisations, but come in lower QoQ due to higher coking coal prices.

 

JSW Steel may see YoY volume contraction, but product mix and margins will improve. SAIL may see flat or lower volumes, but revenue may increase YoY due to higher realisations, leading to higher EBITDA.

 

Dealers say retail steel demand weakened after the Iran war due to gas unavailability. However, the government's infrastructure spending was steady. Long steel prices may be close to a bottom. Some producers are operating at or below contribution margins. Inventory build-up will occur only once the monsoon ends. Current inventory is healthy, but not excessive.

 

There may be a QoQ EBITDA decline for steel companies, driven by lower volumes compared with a strong Q4 base and higher coking coal costs. However, better HRC pricing and higher realisations may offset this. Domestic HRC prices were up 9 per cent YoY and 7 per cent QoQ in Q1, after rising 11 per cent YoY and 12 per cent QoQ in Q4 FY26. In July, prices have pulled back slightly. The safeguard duty leaves domestic HRC prices at a 9 per cent discount to Chinese imports.

 

For aluminium companies, QoQ EBITDA growth may moderate due to raw material inflation, but there would be growth on a YoY basis. LME aluminium is up 45 per cent YoY and 13 per cent QoQ due to the shutdown of Middle East capacity.

 

Hindalco's domestic operations will benefit from higher LME prices, while Novelis may improve because of the lower impact of the fire at the Oswego facility and better scrap spreads. Hindalco's aluminium sales volumes are seen rising YoY, but declining QoQ. Novelis' shipments may decline YoY due to the Oswego fire, but will recover QoQ from Q2 FY27 as the Oswego hot mill commissioning has started. Copper sales volume may be flat YoY.

 

Hindalco's consolidated revenue will rise YoY and probably QoQ due to higher aluminium realisations. EBITDA per tonne will increase YoY. On a QoQ basis, EBITDA growth will moderate as higher LME prices will be offset by higher raw material costs, weighing on margins.

 

NALCO will gain from steady sales volumes and higher aluminium prices, leading to higher EBITDA YoY. QoQ revenue growth may be moderate due to lower sales volumes. EBITDA and margins may be flat QoQ.

 

APL Apollo Tubes may see a significant drop in sales volumes QoQ, leading to lower revenue and EBITDA. However, net realisations will be higher YoY, driving up EBITDA.

 

Hindustan Zinc may see EBITDA rise sharply YoY (flat QoQ) due to higher zinc prices. Vedanta is likely to benefit from the same trend in zinc. Vedanta Aluminium may see gains in EBITDA both YoY and QoQ due to higher aluminium prices.