SAIL eyes improved profitability as imported coal prices dip

Public sector enterprise SAIL — among the top three steel companies in India — expects improved profitability from Q2FY23 on, owing to a correction in imported coking coal prices and an anticipated post-monsoon pick-up in domestic demand.

According to Anil Kumar Tulsiani, Director (Finance), SAIL, compared to flat products — where price decline has been the highest —long product prices have held firm.

From around ₹58,000 per tonne in June, flat product prices fell to ₹56,500–57,000 per tonne in July. August prices are almost the same as in July.

“…So the results for July (in terms of flat product prices) are not good. Longs are holding on much better. However, we will see benefits accrue from middle of August,” Tulsiani said during the post-earnings conference call.

“Average purchases are expected to go up once the monsoons recede. We are in the long products mostly, and we have a good range,” he said, adding that the company would neither cut production in Q2FY23 (July to September) nor revise guidance on production and sales targets.

July volume sales are around 1.4 million tonnes, indicating demand turnaround, and post mid-August the numbers are expected to improve. He, however, did not comment on the price movement expectations, saying “prices remain volatile at the moment”.

Monsoons are seen as a lean period for steel demand; export demand — which accounts for 10 per cent of SAIL’s portfolio — has been depressed owing to levy of duty (making exports costlier) and global recessionary pressures.

“We have requested the Ministry to waive the tariffs. But there has not been much headway there,” he said.

Coal price correction

In Q1FY23, SAIL saw a 79 per cent fall in consolidated net profit to ₹805 crore, due to raw material price increase.

Tulsiani had said during the post-earnings call that Q1 profitablity was hit because imported coking coal costs remained high. However, with “price corrections”, the benefits are expected to accrue in the later part of this quarter (July to September).

From $500–600 per tonne in Q1FY23, imported coal prices currently are at $200–230 per tonne.

“So with the price of coal coming down, we could see the benefits middle of August onwards,” he said.

According to a report by research firm Motilal Oswal, the La-Nina phenomenon in Australia is over and coking coal supplies within China has improved. It expects new coal prices to reflect in SAIL’s September quarter profitability numbers. “With steel price at over ₹55,000 per tonne and coking coal cost at $200 per tonne, we believe margins should normalise in Q3FY23 and improve in Q4,” it said.

Gross debt increases

SAIL’s gross debt, as on June 30, 2022, also increased substantially to ₹22,101 crore, up by ₹13,900 crore. The increase was primarily because of “rise in working capital requirements”.

Tulsiani said that the PSU steel-maker had to pay for imported coking coal at an elevated cost, due to which the debt increased.

“In addition, release of cash locked in working capital will ensure debt reduction in the next two quarters and help improve the valuation of the stock,” the Motilal Oswal report said, adding that SAIL will benefit the most from this contraction in coking coal prices.

Published on

August 16, 2022

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