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Profitability of domestic steel makers to rise in Dec quarter on better demand conditions.

After a challenging September quarter, the profitability of domestic steel makers in the October-December quarter is expected to improve on the back of increased demand and lower input costs, analysts said.


Analysts see a ray of hope in the December quarter for Indian steel companies on better domestic demand conditions.


 "The financial performance of Indian steel companies in the second quarter of the current fiscal has been adversely impacted by falling steel prices and high raw material prices, mainly coking coal, on the other.


"However, their profitability is expected to improve in the third quarter of FY2023, given lower coking coal costs and an expected pickup in capacity utilization rates on the back of better domestic demand conditions," Roy added.


 In July-September 2022, the top five steel makers of India -- which control about 60 percent market -- reported losses or posted sharp falls in their net profits citing adverse market conditions.


 According to Kaustubh Chaubal, Senior Vice President, Corporate Finance at Moody's Investors Service, leading steelmakers reported dampened earnings for a seasonally weak July-September period amid elevated input and other costs and a steep decline in steel prices.


"Even so, India remains a bright spot in the region, with a high-single-digit percentage growth in steel consumption over the next 12 months supported by demand for autos and continued infrastructure spending by the government," it is said.


Suman Chowdhury, Chief Analytical Officer, Acute Ratings & Research, said raw material prices that increased due to supply constraints are set to moderate in the second half of the current fiscal. In contrast, steel prices are expected to be firm due to a seasonal pickup in demand.


"We believe that the profitability scenario in the steel sector will improve moderately over the next two quarters," it is said.


Echoing similar sentiments, Manish Gupta, Senior Director, CRISIL Ratings Limited, said, "Going forward, we see steel prices to remain range-bound in the second half as weak global steel demand gets offset by healthy domestic steel demand, which is expected to grow 6-8 percent this fiscal."


In July-September, state-owned SAIL slipped into the red, posting a consolidated loss of Rs 329 crore. It had clocked Rs 4,338.75 crore net profit during the same period of the preceding fiscal.


JSW Steel also reported a consolidated net loss of Rs 915 crore for the quarter that ended September 30, 2022. The company had clocked Rs 7,179-crore net profit in the year-ago period.


Tata Steel's consolidated net profit fell 90 percent to Rs 1,297 crore in the quarter from Rs 12,547.70 crore in the corresponding period of the previous financial year.


ArcelorMittal Nippon Steel (AM/NS) India posted earnings before interest, taxes, depreciation, and amortization (EBITDA) of USD 204 million during the quarter under review against USD 551 million a year ago.


The net profit of Jindal Steel and Power Limited (JSPL) shrank to Rs 219 crore as against Rs 2,678 crore.