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SAIL Q1 Slumps; Sees Steel Demand Improving

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Steel Authority of India Ltd (SAIL), India's largest domestic steel producer, on Friday said it expects steel demand to improve and held out hope its raw material costs may reduce in coming quarters as coal supplies from Australia stabilise.

The state-run firm earlier posted a 29 per cent slump in quarterly net profit as sharply higher raw material costs hurt margins.

"Though steel prices have remained stable and demand for steel subdued so far, we are looking at domestic demand growing progressively in the latter half of FY12," SAIL Chairman C.S. Verma said in a statement.

"We are hopeful that our cost burden will ease in the following quarters," he added.

The $500 billion global steel industry has faced softer demand in the past few months, mainly from the construction and automobile sectors, and outlook for the rest of the year has been mixed.

Earlier this week, world No. 1 steelmaker ArcelorMittal raised its forecast for 2011 global steel consumption due to stronger demand from China.

However, South Korea's POSCO warned last week of weakening demand growth and persistently high costs in the second half, while U.S. steel producers have also warned of weakening steel prices.

SAIL said it spent 5.8 billion rupees more on coal -- of which 4.2 billion was on account of higher imported coal costs -- during the quarter, compared with the year ago. Coking coal prices jumped to $330 a tonne from $200 a year ago, it said.

SAIL imports 75 percent of its coking coal requirement and a significant portion of that is from Australia.

Q1 Sales Higher
Earlier, SAIL said its net profit in April-June, its fiscal first quarter, fell to 8.38 billion rupees ($190 million), compared with 11.77 billion rupees a year ago. Net sales rose to 108.11 billion rupees from 90.29 billion rupees.

The company said steel volumes rose 18 percent in the quarter to 2.75 million tonnes.

A Reuters poll of 12 brokerages had estimated net profit for the fiscal first quarter at 10.76 billion rupees on net sales of 111.1 billion.

SAIL, with annual capacity of about 15 million tonnes, is the largest steel producer in India, but lags Tata Steel's global capacity of about 28 million tonnes, and JSW Steel's 11 million tonnes.

The impact of higher cost was partially neutralised by better product-mix, higher sales and savings, it said.

Ahead of the results, SAIL shares closed down 1.6 percent at 126.35 rupees in a weak Mumbai market. The stock, valued by the market at $11.97 billion, has declined 31 percent so far in 2011, compared with a 11.3-percent fall in the main stock index.