Rising Demand, Falling Debt Drive Steelmakers’ Q3 Earnings
A roll of raw steel passes through the hot dip galvanizing production line at the Tata Steel Ijmuiden BV plant, a unit of Tata Steel Ltd., in Ijmuiden, Netherlands. (Photographer: Jasper Juinen/Bloomberg)

Rising Demand, Falling Debt Drive Steelmakers’ Q3 Earnings

The profit and revenue of India’s listed steelmakers rose in the quarter ended December, beating estimates, aided by rising demand for the alloy, higher realisations and falling debt amid improved cash flows.

Demand has slowly inched higher and is almost close to last year’s levels after India started easing the Covid-19 lockdown, resulting in increased economic activity. Increased prices of hot-rolled coil steel during this period, too, aided the companies.

Here’s a closer look at the performance of steelmakers, who expect to sustain it in the ongoing quarter.

Operating Performance

Production efficiency, measured in terms of Ebitda per tonne, improved on higher spreads.

For JSW Steel Ltd., it rose to a record, and increased for Tata Steel Ltd., driven by higher prices, better product mix, lower exports and operating efficiency initiatives.

For Jindal Steel and Power Ltd., a better-than-expected steel realisation and higher consumption of no-cost iron ore inventory from Sarda mines aided its Ebitda per tonne, Amit Murarka, vice president of Motilal Oswal Securities, said in a note. Steel Authority of India Ltd., Murarka said, was the biggest beneficiary of improved steel pricing and increased contribution from iron ore sales.

Falling Debt

All steel firms reduced their debt. Fully integrated companies such as SAIL and Tata Steel also offered aggressive guidance.

SAIL’s internal target is to reduce net debt to below Rs 40,000 crore by March from Rs 46,610 crore as of December, even after taking into account higher employee costs in the fourth quarter and assuming no reduction in receivables from Indian Railways.

Tata Steel pared its net debt reduced by Rs 10,325 crore to Rs 86,170 crore as on December 2020, and plans to reduce gross debt by Rs 12,000 crore in the fourth quarter.

Volume Growth

Volumes declined sequentially for steelmakers in the December quarter even as growth remained largely unchanged over the preceding year. Improving demand and lower share of exports aided deliveries slightly.

A higher base effect from a year earlier, and an extremely strong quarter for the steel players mainly makes the growth look weak for both Tata Steel and JSW Steel on a year-on-year basis, according to Amit Dixit, assistant vice president of research at Edelweiss Securities.

Higher Realisations

Realisation or the average selling price per unit of the product rose for most steel players. That was aided by better sales mix, rising hot-rolled coil prices, among other factors.

Spot steel prices stood at Rs 7,000 per tonne, leading to higher realisation for all steel firms.

Tata Steel cited higher international steel prices amid robust demand, restocking and supply tightness as the reasons behind rise in steel prices. JSW Steel said a proportion of higher-margin, value-added and special steel sales led to a relatively higher realisation.

Q4 Outlook

Most companies expect demand from the infrastructure or automobile sector to rise.

Even as international steel prices have moderated since January, domestic prices are expected to stabilise because of inflationary pressures such as higher iron ore and coking coal prices, they said. Here’s what the companies had to say on pricing and demand.

Tata Steel

  • Spot HRC gross spread improved during the quarter, with higher steel prices expected to reflect in the company’s finances in the March quarter.
  • Expect realisations to rise by Rs 6,000-7,000 per tonne in the next quarter, partially due to higher prices.
  • Budget’s focus on infrastructure in rural and urban areas augurs well for steel demand going forward. The recently announced scrappage policy should drive the segment further for deliveries to the automotive segment.

JSW Steel

  • Spot prices for hot-rolled coil went up by about Rs 2,000 per tonne and by about Rs 2,500 for long products in January.
  • The company is renegotiating with automakers to hike prices in two tranches—from January and from April 1, 2021.
  • The company has seen a good recovery from the auto sector. However, demand in the fourth quarter would be driven by infrastructure, automotive, consumer durables and retail segments.
  • Expects strong growth in FY22, and eyes 10-12% of growth in steel demand.


  • Steel prices have risen because of pent-up demand and one can expect more demand as Indian projects are consuming hugh quantities of the alloy and cement to meet their targets left halfway during the Covid-19 pandemic.
  • The company has been exporting a substantial quantity of steel as hot-rolled coil prices rise in the international market.
  • Countries like Italy, France, Denmark, Austria, Germany, France and Spain are buying in bulk, and the demand is high. Selling price in these countries today is about $816 to $820 a tonne—which is much higher than that in India.

Analysts’ Take

Most analysts revised their target prices for steel stocks but the biggest upgrades came for state-run SAIL.

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