Weak pricing power and high cost of raw materials may have eroded the profitability of many steel makers in India, some brokerages feel.
Despite high cost of raw material, domestic steelmakers are unable to raise prices because of subdued demand. Therefore, analysts expects steel firms to announce poor profit numbers in the Oct-Dec 2012 quarter.
But it may be noted that despite weak demand, steel makers have continued to increase production. Steel production at JSW Steel’s Vijayanagar plant in Karnataka grew eight per cent in Oct-Dec 2012 quarter against the corresponding period last year. Tata Steel produced 2.09 million tonne (mn t) steel in the quarter, up from 1.93 mn t a year ago.
Enam Equity Research, in its January report, suggested steel makers would continue to report weaker demand for their products.
It said: “We expect NMDC and Tata Steel to post muted numbers for the December quarter owing to lower volume offtake. We expect volumes to improve in the March quarter due to seasonal demand (pick-up in construction activity).”
Mitra and Bagaria of ICICI wrote: “The true impact of restocking should be felt in the March quarter where simultaneous impact of price rise as well as weak raw material prices can lead to a positive surprise.”