Steel makers: The worst may not be over

With demand for steel picking up in the last couple of months steel makers now sound a little more confident about prices stabilising in the home market. SAIL’s volume sales in February were up 9 per cent at 1.17 million tonnes and although the company is yet to renegotiate fresh contracts for coal, these are expected to be at substantially lower prices.
Unless demand sustains though, some of this benefit may be passed on to consumers in the form of lower prices and as such average realisations in 2009-10 may well be lower than they’re expected to be in 2008-09.
So the worst may not be over yet. The same is true for Tata Steel. According to Macquarie, the firm’s European operations will continue to operate at 60 per cent capacity till June this year since demand remains weak and inventories high.
While fresh contracts for key inputs as also other savings will bring some succor, they could be offset by lower volumes and realisations. Back home, Tata Steel may have trouble finding demand for enhanced capaciies though it should sell better volumes in 2009-10.
While JSW Steel should gain from lower prices of both iron ore and coking coal, net profits could fall sharply in 2009-10 because of lower volumes and prices.
Source: BS