Steel price fall lands JSW Steel in surprise ₹915 crore Q2 loss

The company posted a consolidated net loss of ₹915 crore in the three months ended June. A Bloomberg survey of analysts had forecast a consolidated net profit of ₹229.7 crore.

Operating earnings before interest, taxes, depreciation and amortization (Ebitda) declined from ₹4,309 crore in the June quarter to ₹1,752 crore in the September quarter. This widely lagged the ₹3,368.6 crore consensus estimate in the Bloomberg survey.

JSW’s performance during the quarter was significantly impacted by a sharp fall in steel prices, while benefits of lower raw material prices will flow through with a lag, the company said. One-off items such as net realizable value (NRV) provisions and inventory losses, mark-to-market unrealized loss on outstanding foreign currency loans and duty on exports also impacted the operating performance. However, consolidated revenue for the quarter rose 9.6% sequentially and 28.5% from a year earlier to ₹41,778 crore.

Steel prices have been falling ever since the imposition of export duty in May. The significant decline in international steel prices on slowdown concerns has also put pressure on steel manufacturers. Steel demand was also subdued in the June quarter due to destocking, while traditionally lower construction activity in the September quarter due to the monsoons, led to a drop in long-product sales.

Average flat and long steel prices in the domestic market have contracted 17% and 4% sequentially, respectively, in Q2, according to analysts at PhillipCapital Institutional Equity Research. Depending on the product mix and export exposure, flat long blended realization for companies fell by ₹9,000- 13,000 per tonne in the quarter, the analysts said.

Analysts at Reliance Securities said JSW’s realizations fell by 12% from a year earlier and 16% sequentially to ₹64,858 per tonne in the September quarter, while raw material costs per tonne jumped 75% from a year earlier and 14% sequentially to ₹55,361, primarily on account of higher coking coal prices. Power and fuel costs surged 48% from a year ago, but were down 17% sequentially to ₹9,186 per tonne.

During the quarter, JSW’s combined crude steel production declined 3% sequentially to 5.68 million tonnes, primarily due to extended maintenance shutdowns at JSW Ispat Special Products Ltd and subdued demand in the US market, the company said.

Standalone crude steel production increased 21% from a year earlier to 4.95 million tonnes in the September quarter. However, production fell a tad on a sequential basis due to availability and logistics constraints in sourcing iron ore. Saleable steel sales at the standalone level rose 24% sequentially and 32% from a year earlier to 5.01 million tonnes for the quarter, driven by improved domestic retail demand. Exports, which comprised 7% of JSW’s total sales for the quarter, saw shipments decline 38% sequentially due to the imposition of the export duty in May, it said.

At the standalone level, the company’s operating Ebitda declined 48% sequentially to ₹1,742 crores during Q2, and Ebitda margins were down to 5.4%, primarily because of a 14% fall in net sales realization, the steelmaker said. The benefits of declining raw material costs, however, are expected to accrue during the second half of FY23, it said, adding that demand may also improve.

“Despite a challenging global economic scenario, we expect healthy steel demand growth in India during H2 of FY23, which along with flow through of lower raw material price should aid the company’s performance in the coming quarters,” JSW said.