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Steel companies' EBITDA/tonne to decline in Q2FY23, recover likely in Q3FY23 - Metal Q2FY23 Preview

ICICIdirect Research 12 Oct 2022 DISCLAIMER

What's Buzzing 

During Q2FY23, despite a softening trend in coking coal prices, domestic steel companies' EBITDA/tonne are likely to witness a declining trend. 

Context 

During Q2FY23, domestic steel companies' EBITDA/tonne are likely to decline, primarily on the back of a sharp fall in steel prices during the quarter. The fall in coking coal costs will not fully compensate for lower steel prices during the quarter. 

Our Perspective 

For Q2FY23, we expect domestic steel companies EBITDA/tonne to decline both QoQ as well as YoY basis primarily due to steep fall in steel prices. Sequentially, average decline in steel prices is expected to be ~Rs 12000-13000/tonne QoQ (~16-17% QoQ), due to price cuts taken in domestic market and lower export realisation due to export duty. During Q2FY23, against a steep fall in steel prices there was only marginal relief in the form of softening coking coal and iron ore costs. Sequentially, during Q2FY23, coking coal costs are expected to be ~US$40- 60/tonne lower compared to Q1FY23. As steel companies generally carry a couple of months of coking coal inventory, higher benefit of falling coking coal costs is likely to come with a lag and is likely be seen in Q3FY23E. During Q2FY23, a sharp fall in steel prices would outweigh benefits of a fall in costs thereby resulting in a decline in EBITDA/tonne of steel companies (during Q2FY23). For Q2FY23E, EBITDA/tonne of Tata Steel (standalone operations) is expected to come in at Rs 10000/tonne (Rs 21326/tonne in Q1FY23). For Q2FY23E, standalone operations of JSW Steel are likely to post an EBITDA/tonne of Rs 4800/tonne (JSW Steel’s adjusted EBITDA/tonne for Q2FY23 was at ~Rs 12086/tonne). SAIL’s EBITDA/tonne for Q2FY23E is likely to come in at Rs 3250/tonne (Rs 7304/tonne in Q1FY22).

 

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