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EBITDA/tonne to further improve in Q4, aided by price increases- Steel Q3FY23 Review

ICICIdirect Research 28 Feb 2023 DISCLAIMER

What's Buzzing 

Indian Steel companies domestic operations witnessed a sequential increase in EBITDA/tonne in Q3FY23. As prices have witnessed a steady uptick over the last few months, steel companies EBITDA/tonne are likely to further expand in Q4FY23. 

Context 

Despite a sequential drop in realisations, EBITDA/tonne of steel companies improved in Q3FY22 aided by lower coking coal consumption costs. Going forward, aided by recent uptick in prices,  EBITDA/tonne of steel companies are likely to further expand sequentially in Q4FY23 from Q3FY23 level. 

Our Perspective: 

At an average , EBITDA/tonne of steel companies (domestic operations) within in our coverage universe registered an increase of ~Rs 2700/tonne in Q3FY23 when compared with Q2FY23. Over the last few months there is an uptick witnessed in steel prices which would aid companies to further expand its EBITDA/tonne in Q4FY23. With respect to the steel prices, on the global front, over the last 3 months Chinese steel prices have seen an uptick of ~16% is currently hovering at ~US$ 660/tonne. Domestic HRC price have also seen an uptick of ~7% in the above mentioned period and is currently hovering at ~ Rs. 59500/tonne.  Along with increase in steel prices, during Q4FY23, for major steel companies such as Tata Steel and JSW Steel coking coal consumption costs is likely to remain flattish on a QoQ basis. Higher prices on sequential basis coupled with a QoQ flattish trend in coking coal cost is likely to have positive rub-off on EBITDA/tonne of companies. Also, seasonally, Q4 is traditionally the strongest quarter in terms of sales volumes for domestic steel companies. An uptick in prices, during this period, augurs well for domestic steel players. Additionally, post removal of export duty in November 2022, domestic steel companies are likely to also likely to enhance exports volume in Q4FY23.

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