The apex court ban on iron ore mining in Karnataka’s Bellary region will give steelmakers more pricing power, and the oversupply of flat products will cease
The closure of private iron ore mines in Bellary, Karnataka after the Supreme Court (SC) ban on mining in this belt, is poised to change the demand & supply equation in the region. There is not enough iron ore supply to feed the steel mills in Karnataka. JSW Steel is the worst hit, according to brokerage firm Motilal Oswal, in its update on the steel sector for the first week of August.
The apex court has allowed NMDC to restart iron ore mining on a monthly basis in Bellary with a limit of 1MT (million tonnes). Iron ore miners will have to shell out 10% of their sales revenue to the Karnataka government, the proceeds of which will be used to rehabilitate Bellary. PINC Research, a brokerage firm, has said that this move would result in increased iron ore prices, but the SC's permission for resumption of 12MT of annual iron ore output (from NMDC) would provide some respite to steel mills dependent on ore from Bellary, the biggest iron ore mining area in Karnataka.
According to media reports, Karnataka supplies iron ore of approximately 15MT, which translates to roughly 25% of the total steel production of the country.
In a press statement, JSW Steel has promised to "safeguard direct and indirect employment" in the steel industry in this region. It plans to operate its plants at around 80% capacity. The requirement of iron ore to operate these units in JSW Steel plants —at full capacity—will be 18MT. The proposed 12MT release from NMDC in Bellary district is against the industry requirement of 33MT. Thus, only 60% of the requirement will be met.
The Indian steel market, which appeared to be moving towards oversupply of flat products, is expected to turn a net importer, giving steelmakers more pricing power. Tata Steel, Essar Steel and Ispat Industries will benefit from the new demand-supply equation.
Sesa Goa has announced acquisition of 51% stake in Western Cluster Limited (WCL) from Elenilto for $90 million, which has reserves of total saleable product of 330MT.
WCL will need to invest in developing of mines and associated infrastructure. Sesa is likely to benefit from changed pricing dynamics in Karnataka, though royalty payments may go up.
Tata Steel will remain unaffected due to its captive iron ore mines in Jharkhand and Orissa and it will benefit from a regional steel price premium led by correction in oversupply of flat products in India.
Jindal Steel & Power (JSP) may remain unaffected by the Bellary ban, as it has secured iron ore supply from captive mines and has long-term arrangements with third party mining companies. JSP mainly produces long products and plates and has an insignificant presence in the flat products market.
SAIL recently announced disappointing first quarter results. Specific fixed and power costs rose sharply. Staff costs increased due to the impact of inflation on dearness allowance and gratuity. Staff costs will rise further in 2012 because wage revision for non-executives is due with effect from 1 January 2012. Some benefit will flow to SAIL due to expected improvement in the regional premium on flat steel product prices. Progress on projects is very slow and SAIL is struggling to grow volumes and contain costs.
According to Standard Chartered Equity Research, profitability in the steel sector is likely to decline both quarter-on-quarter (q-o-q) and year-on-year (y-o-y). On a quarterly basis, realisation is expected to be flat. The rise in the price of coking and thermal coal is likely to affect profitability. SAIL remains the likely top performer given the fact that negative factors (primarily project delays) have been discounted by the market.
The Moneylife ML Sector Index on share prices of steel producers has reacted sharply to the adverse Bellary mining ban development. It has fallen 13% in the period from January-June 2011 and 21% in the period from Jan 2011 till date.
The company had reported a net profit of Rs52.17 crore for the quarter ended 30 June 2010
Textile firm Bombay Rayon Fashions today posted an 8.89% year-on-year increase in net profit to Rs56.81 crore for the quarter ended 30 June 2011.
The company had reported a net profit of Rs52.17 crore for the quarter ended 30 June 2010, Bombay Rayon Fashions said in a filing to the Bombay Stock Exchange.
During the quarter under review, Bombay Rayon Fashions achieved net sales of Rs603.82 crore, a 20.11% jump from Rs502.69 crore in the corresponding year-ago period.
For the year-ended 31 March 2011, the firm posted a net profit of Rs226.69 crore on net sales of Rs2,254.83 crore.
In the late afternoon, Bombay Rayon Fashions was trading at around Rs280.50 per share on the Bombay Stock Exchange, 0.07% up from the previous close.
The growth has been recorded across both automotive & non automotive segments
Bharat Forge Ltd today announced its Q1 results with combined and standalone revenue reaching Rs1,583.2 crore and Rs872.4 crore respectively.
Standalone Indian operations registered strong growth with total income growing by 36.3% to Rs872.4 crore and PAT increasing by 64.0% to Rs97.4 crore. EBITDA margin for the quarter was maintained at 25.6%.
Domestic revenues grew by 18.6% over the same period previous year to Rs476.6 crore while they increased by 2.8% over the previous quarter despite a 10% sequential drop in automotive volumes.
Exports continued to impress with strong growth of 67.1% to Rs381.1 crore over the same period previous year. The growth has been recorded across both automotive & non automotive segments.
The overseas operations have continued to post good numbers on back of strong auto demand. Revenues have grown by 38.1% to Rs710.8 crore while PBT for the quarter was Rs11.1 crore against Rs7.2 crore in the corresponding quarter previous year, a growth of 54.2%.
BN Kalyani, CMD said, "Non automotive business has grown by more than 50% compared to last year and it continues to witness tremendous traction with good order flow. The non auto business has brought about a distinct change in customer base of BFL with many marquee names added in the past few years."
In the late afternoon, Bharat Forge was trading at around Rs286 per share on the Bombay Stock Exchange, 5.87% up from the previous close.