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Steel companies to report muted volumes YoY…
The Coronavirus outbreak, which commenced during the start of CY20 has led to lockdowns in many countries globally. It is likely to have an adverse impact on global growth rates. As commodities are closely linked to the global growth outlook, the lockdowns of countries and economic activity coming to a standstill have had an adverse impact on metal demand and prices. FY20, itself has been a tepid year for metal sector, wherein the steel demand growth has been ~3.9% in the 11-month period between April and February 2020 vs. demand growth of 7.5% in FY19. In addition to muted demand, steel prices are also subdued (down 7-8% YoY), which is likely to companies operating margins YoY. Domestic steel companies are likely to report subdued volumes wherein Tata Steel standalone operations volumes are likely to decline 14% YoY while that of JSW steel is likely to decline 15% YoY. The EBITDA per tonne of Tata Steel (standalone operations) is expected come in at | 11000 per tonne (| 10123 per tonne in Q3FY20 and | 13619 per tonne in Q4FY19) while domestic operations of JSW Steel are likely to report an EBITDA per tonne of | 6750 per tonne (| 5598 per tonne in Q3FY20 and | 10119 per tonne in Q4FY19).
Non-ferrous prices to fall both QoQ, YoY….
Initially, during the start of CY20, the epicentre outbreak of the Coronavirus pandemic was China, which is also the world’s largest consumer of metals. Hence, since the start of the current calendar year, metal prices witnessed a downward slide. During Q4FY20, average zinc prices on the LME were at US$2124 per tonne, down 21.5% YoY and 11.0% QoQ while average lead prices were at US$1843/tonne, down 9.4% YoY, 9.8% QoQ. Similarly, average aluminium prices on the LME were at US$1691 per tonne, down 9.2% YoY and 3.7% QoQ while average copper prices on the LME were at US$5632 per tonne, down 9.5% YoY and 4.4% QoQ.
Muted metal prices to impact aggregate operating margin
We expect the aggregate topline of coverage companies to decline 19.1% YoY. On the back of a weakness in metal prices, in general, YoY, the aggregate EBITDA is expected to decline 35.9%YoY. The EBITDA/tonne of domestic miners in Coal India is likely to come in at | 391/tonne with NMDC expected to report the same at | 2138/tonne. We expect Novelis (Hindalco’s subsidiary) to clock an EBITDA/tonne of US$400/tonne.
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