Shares of JSW Steel have lost nearly 11% since the government imposed export duty on steel with effect from May 22. Simultaneously, the domestic price of the commodity has improved significantly as a result of sluggish international prices.
According to Steelmint, domestic hot-rolled coil prices fell 20% from the highs seen in April 63,100 per tonne on June 8.
Analysts at Nomura Financial Advisory and Securities (India) said in a report on June 13, “The management expects the fall in prices to be stable till the cost of coking coal is below around $400 per tonne. ” The brokerage hosted JSW Steel at the Nomura Investment Forum.
However, levying export duty means less realization on shipments. Nevertheless, the company will continue to export 15-20% of its production in FY23 to maintain long-term customer relationship.
“With exports accounting for 15% of management’s sales estimates and a 15% reduction on exports, total net steel realization could be impacted by 2.0-2.5%,” the Nomura report said.
But softening prices of raw materials like coking coal and iron ore have provided some respite. However, this impact is expected to be reflected with a lag financially. Thus, the Company expects EBITDA (earnings before interest, taxes, depreciation and amortization) per tonne to stabilize from Q2FY23.
On the demand front, the upcoming monsoon season may lead to a slowdown in construction activities, which will have an impact on steel demand. On the other hand, demand from automobile sector Continuing to firm up with the increased traction seen for passenger vehicles and commercial vehicles.
In H1FY23, the company anticipates an increase in mill-level inventory, but channel inventories are expected to soften in the near term due to lower demand. As prices stabilize, it expects buying to re-emerge from the later part of June.
Meanwhile, it aims to achieve brownfield capacity expansion at $400 per tonne, well below the replacement cost of $1,000 per tonne of steel plants globally. “We believe management’s focus on relatively low-cost brownfield expansion, digitization and other cost measures will structurally drive profitability,” Nomura’s report said.