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Metal Q4FY22 Preview: Steel companies' EBITDA/tonne to soften QoQ on higher input cost

ICICI Securities 13 Apr 2022

What’s Buzzing:

Coking coal prices witnessed a sharp uptick during Q4FY22. In terms of point to point movement, Australian hard coking coal prices have increased from ~US$351/tonne as on January 1, 2022 to ~US$594/tonne as on March 31, 2022.

Context:

Throughout Q4FY22, an increasing trend was witnessed in coking coal prices, which is expected to increase the overall operating costs for steel companies during Q4FY22. Hence, for the quarter, rising coking coal cost is likely to result in a sequential decline in EBITDA/tonne for steel companies.

Our Perspective:

During the quarter, blended steel realisation is expected to be up sequentially by ~Rs 1000-3000/tonne, driven by back-ended price hikes and strong export market. However, on the cost side, coking coal costs for the quarter are expected to be higher by ~US$40-50/tonne sequentially. As steel companies carry couple of months of coking coal inventory, major impact of sharp increase in coking coal costs impact is likely to come in Q1FY23E. During Q4FY22E, for our coverage universe, higher coking coal cost is expected to lead to a sequential dip in EBITDA/tonne in the range of ~Rs 1000-3000/tonne QoQ. For Q4FY22E, EBITDA/tonne of Tata Steel (standalone operations) is expected to come in at Rs 25500/tonne (Rs 28631/tonne in Q3FY22). For Q4FY22E, standalone operations of JSW Steel are likely to post an EBITDA/tonne of Rs 14000/tonne (Rs 16993/tonne in Q3FY22). SAIL’s EBITDA/tonne for Q4FY22E is likely to come in at Rs 7800/tonne (Rs 8859/tonne in Q3FY22).

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