Owing to subdued demand for steel, earnings of companies in the sector may remain under pressure despite decline in the cost of coking coal and iron ore, the two key raw materials.
Some analysts feel that earnings of steel firms may not improve in the next quarter and may recover only from the second half of 2012-13 as demand revives once construction activities and manufacturing activities pick up. Revival of the auto sector is also essential for steel demand to increase, said Jain.
But the fall in input cost may reduce pressure on margins for steel firms like Tata Steel, SAIL, Essar Steel and JSW Steel, analysts said.
It may be noted that coking coal contract prices declined around 19 per cent in May from their peak in February to $145 per tonne. In the international market, the prices have declined by around 19 per cent to $132. Following global trends, NMDC has also reduced prices of lumps by seven per cent.
The decline in raw material prices will help the companies partially mitigate pressure on margins. The companies would have benefited more had the demand remained robust, analysts opine.
The bottomlines of these firms will remain subdued, as the beginning of the monsoon season will weaken demand.
Steel companies are expected to report subdued earnings in the fourth quarter as they failed to increase prices even in the peak season.
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