Steelmakers warn of revenue decline in third quarter, hope for recovery in fourth quarter

Leading manufacturers including Tata Steel Ltd and Steel Authority of India Ltd (SAIL) are bracing for a challenging December quarter, with recovery expected only in the fourth quarter.

Despite hints of a recent recovery, average selling prices in the December quarter are expected to decline by ₹1500-2000 per ton compared to the previous quarter. “This is largely due to the fact that in the second quarter July prices were quite high and then fell until September. Steel prices started rising in October, but we do not expect prices in December to be the same as in July,” Tata Steel managing director TV Narendran told analysts on a call.

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In the first half of FY25, a surge in steel imports of over 51% hit local prices. In September, base prices for hot rolled coil (HRC) fell to an average of ₹48,029 per ton, falling below ₹The 50,000 per tonne mark is the first time since November 2020, according to analytics firm BigMint. Prices have improved slightly, on average by ₹In October 48,222 per ton.

Domestic steel consumption stood at 37.1 million tonnes in the September quarter, up nearly 12% year-on-year, mainly driven by demand from the infrastructure, construction and automotive sectors. However, local production rose just under 3% to 36.2 million tonnes as imports met most of the rising demand.

Lower prices and pressure from China

Domestic steel producers have also struggled with price pressures, adjusting to lower contract rates and grappling with a surge in cheaper imports.

Tata Steel recently renegotiated supply contracts with automakers to align them with current market prices, which could further reduce net sales. Those second-quarter contracts reflected higher steel prices since April, providing a temporary cushion that has since weakened as prices have weakened, Narendran said. Automakers and steelmakers typically lock in prices for six months, meaning Tata Steel’s contracts for the third quarter will reflect a market where prices have eased to peak levels.

Consequently, Narendran expects Tata Steel’s average net sales per tonne in the third quarter to be around ₹2000 lower sequentially. The company’s operations in India brought ₹Revenue in the second quarter stood at Rs 32,399 crore with 5.1 million tonnes of steel sold, with average sales of approx. ₹63,400 per ton, compared to just over ₹66,700 per tonne in the previous quarter.

At SAIL, average sales for the second quarter were ₹50,500 per ton, decreasing to approximately ₹48,000 in October before recovering to ₹Finance director Anil Tulsiani said the figure stood at £49,500 in early November.

Executives warned that with December sales unlikely to fully offset October’s low prices, average prices were expected to decline sequentially for the October to December quarter.

For steel companies, sales per ton serves as a key indicator of profitability, reflecting the average revenue generated per unit sold and providing insight into pricing trends and market demand.

Steel companies’ September quarter results were marred by lower sales, with leading players Tata Steel, JSW Steel, SAIL and Jindal Steel and Power reporting annual revenue declines ranging from 5% to 17%. The pressure on earnings comes as a global demand slump has been exacerbated by China, the world’s largest steel producer, flooding international markets with excess supply at lower prices.

“This year there has been a sharp fall in steel prices and one of the main reasons is that China is very active in the export market. Their exports this year were the highest in eight years, pushing down global steel prices. In India, although domestic demand is strong, profitability remains under pressure,” said Dhruv Goel, chief executive of BigMint.

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Economic benefits to reduce margin pressure

While selling prices are expected to remain low in the third quarter, Indian steelmakers will benefit from lower raw material costs, which could help cushion their earnings.

In a November 5 report, BNP Paribas India noted that local hot rolled coil (HRC) prices were at a significant discount to import prices from China, but on par with those from South Korea and Japan. It said Indian steel prices could rise if China announces stimulus. China did announce stimulus soon after, but a Reuters report citing economists said investors were disappointed by the stimulus.

CEOs of Tata Steel, SAIL and JSW Steel expect prices for coking coal, a key raw material for steel production, to fall, while costs are forecast to fall. ₹840-2100 ($10-25) per tonne on average in the third quarter compared to second quarter levels. The average price for coking coal in the second quarter was approximately ₹22,000 per ton.

Jayant Acharya, joint managing director of JSW Steel, also expects domestic iron ore prices to stabilize despite the recent price hike by NMDC, India’s state-owned miner. “Reducing the cost of coking coal by $20–25 will be a positive thing. So this will reduce our costs in the third quarter,” Acharya said during a call with analysts in October.

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Executives are cautiously optimistic about a potential economic recovery in the fourth quarter, driven by expected demand growth. They said low inventories in the supply chain, including at dealers, are expected to lead to higher demand in November and December. Other demand drivers will be the infrastructure segment and expected growth in sales of commercial vehicles and tractors.

“We believe prices fell sharply in September on the back of an international decline. The situation has improved in terms of sentiment. I think inventory in the channels has come down, so replenishment demand and demand from institutional clients has improved,” Acharya said. .

As domestic consumption rises, it is hoped that profitability will improve, allowing the industry to regain balance after a difficult year.