Recent article from Live Mint on steel products, ore:

Steel firms: Duty bound

Shobhana Subramanian & Amriteshwar Mathur / Mumbai June 18, 2008, 3:37 IST



The removal of the export levy on flat products will help steel companies and pipe makers.

The biggest beneficiary of the government's decision to withdraw the 15 per cent export duty on flat-rolled steel products will be JSW Steel. In 2007-08, around 30 per cent of JSW's standalone sales of Rs 12,456 crore came from exports, mainly of flat products.

For Tata Steel, the move is largely neutral because exports account for just a tenth of its standalone sales. But pipe manufacturers such as Man Industries and Welspun Gujarat, whose exports account for more than 80 per cent of their topline, have much to cheer about.

The government's decision to increase the cess on exports of long products, from the earlier 10 per cent to 15 per cent, too will not hurt Tata Steel. For JSW too, these products account for a relatively small 10-11 per cent of sales.

Steel players stand to gain from the uniform ad-valorem export levy of 15 per cent on iron ore, which should help lower the domestic price of this raw material.

JSW Steel, for instance, buys much of its ore requirement from the spot market and should, therefore, see its costs going down. Iron ore producer Sesa Goa, however, would stand to lose as a result of this measure.

Flat-rolled products include hot-rolled coils, galvanised coil, steel pipes and tubes while long products comprise bars, rods, angles, channels, sections and wires used primarily by the construction industry.

With the twin measures expected to be earnings neutral for Tata Steel, the company's earnings per share (EPS)for FY09 is estimated at Rs 90.

At Rs 850, the stock trades at 9.4 times estimated FY09 earnings and is not cheap. With improved realisations kicking in from the September 2008 quarter, JSW should see better earnings in 2008-09, estimated at Rs 110 levels. At Rs 993, the stock trades at nine times estimated FY09 earnings and again, is a tad expensive.

Pipe manufacturers such as Welspun Gujarat, which derive nearly 95 per cent of their turnover from exports, are understood to have slowed down supplies to overseas customers in a bid to avoid paying export duty.

That could impact its topline in the June 2008 quarter by about Rs 50 crore, say analysts, though now that the duty has been removed, the company may speed up deliveries.

Welspun is expected to end FY09 with revenues of Rs 5,800 crore and an EPS of around Rs 32. At the current price of Rs 378, the stock trades at just under 12 times estimated FY09 earnings and should outperform the broader market.

The rollback of the duty should not impact Man Industries significantly because the company has not shipped any pipes during the period when export duties were being levied. Man should end FY09 with an EPS of Rs 19 and at the current price of Rs 98, the stock trades at five times forward.

Sesa Goa's earnings estimates have been downgraded and the company is now expected to post an EPS of Rs 535 in FY09. At Rs 3,729, the stock still trades at a reasonable seven times estimated FY 09 earnings, given the buoyancy in global iron ore prices

Steel cos told to cut prices if global rates fall

Amidst softening prices of steel in the international market, the primary domestic steel producers will have to go for a price cut if global prices of the product continue to fall, said a top government official on Friday.

“International prices of steel have come done. Domestic steel producers will have to definitely cut prices because much depends on international prices of steel. Any reduction in international prices will mean domestic prices will also have to be cut,” steel secretary PK Rastogi said.Steel billet, a semi-finished form of long steel mainly used by the construction industry, is trading at $680 a tonne for the three month contract, from above $1,200 per tonne at June end. Sky rocketing cost of steel raw materials such as iron ore and coking coal, had allowed steel makers to raise prices several times, pushing them to all-time highs. “International prices of steel have softened in the last 5-6 weeks. The big gap between domestic prices and international prices has come down. However, our prices are still low and if international prices go below ours, there is a case to cut prices,” said state-run SAIL’s chairman SK Roongta said.

Originally posted by kumardiwesh Which cycle is the steel sector going through? Is it an upturn or a downturn?

 Steel has been in an uptrend for over 5 years now. It makes sense to take these historical bases and then try and figure out where we are from the base and the top to decide which section of the cycle we are in. It is not easy to actually pinpoint the turning points on the cycle.