Covid-19-led Demand Destruction, Firm Input Costs To Impact Steelmakers
The outlook for domestic steel prices, which has largely remained firm till third week of March, now appears bleak. Domestic steel prices, which had been trading at a premium to international prices, will face pressure as the
lockdownis leading to a build up of inventories. CARE Ratings says that the performance of domestic steel makers is likely to be adversely impacted in Q1FY2021 as a result of Covid-19 pandemic and the 21-day nationwide
lockdown.Just a few days ahead of the lockdown, steel prices in the month of March corrected 2 per cent, while those in Far Eastern countries cooled off by 6 per cent on an average. This had already led to domestic prices trading at a 2 per cent premium to the landed price of steel from countries in the Far East, according to analysts' data. Apart from cooling prices, the impact of
lockdownon demand and rising inventories are likely to put further pressure on domestic steel prices.
The impact on performance will not only be led by demand loss and realisations, but also pressure on margins. The latter is expected to be led by higher input prices apart from weaker steel pricing. The aggressive bidding in recent mine auctions in Odisha will keep iron ore costs high in the near term, feel analysts. The normalising situation in China means that Chinese demand for iron ore and coal will start rising, thereby keeping input prices steady. Thus, while realisations take a hit, pressure on margins may intensify with input costs remaining steady.
The start of production in China would also mean higher Chinese exports. China has recently increased VAT rebate on exports from 9 per cent to 13 per cent. This would also mean reduced opportunities for Indian exporters. Manufacturers as JSW Steel, which have exposure to exports, may feel the heat not only in Asia but in Europe too.
Further, with rising inventories and higher input costs, the manufacturers may see an impact on their working capital requirements as well.
Not surprisingly, analysts at Emkay Global say they expect steel margins to contract sharply in Q1FY21 and continue at the same levels till Q2FY21 given the onset of monsoons, which is traditionally a soft period. Analysts have been generally cutting target prices for Tata Steel, JSW Steel, Jindal Steel & Power (JSPL), even as the stocks tradrd near 52-week lows.
Revoluts Australian Banking Licence Game Changer
Revolut has spent much of its life insisting that it is more than a bank. In Australia, it has now decided that becoming... Read more
The AI Bank Is Coming, But Who Controls The Risk?
Artificial intelligence is no longer something banks discuss as a distant possibility. It is already working behind the ... Read more
ClearBank UK Profit Leads To European Growth
ClearBank has spent much of the past decade building the technology and regulatory infrastructure needed to challenge so... Read more
Bank Of London Continues To Rebuild
ClearBank’s progress shows that modern clearing and banking infrastructure can become a sizeable and profitable busine... Read more
JPMorgan's Berlin Moment: Chase Takes On Europe
There is something quietly symbolic about JPMorgan Chase choosing Berlin as its gateway into continental Europe. In a fo... Read more
What Strategy's Bitcoin Sale Really Tells Us
There is a moment in every bull run when the narrative starts to fray. Not with a crash, not with a scandal, but with so... Read more