Global operations weighing on local metal companies' margins

Leading metals companies saw their consolidated margins being weighed down by their overseas units during the quarter ended December even as their Indian operations registered a sequential recovery from the lows of the preceding quarter.

The companies include Tata Steel, JSW Steel, Hindalco and Jindal Steel & Power. However, the companies are hopeful of a turnaround in the ongoing financial quarter.

Leading steelmaker Tata Steel, which has sizeable operations in the UK and the Netherlands, reported a surprise Rs 2,502 crore loss during the period under consideration, primarily on account of its European units.


“In Q3, performance of Tata Steel in India was reasonably strong,” the company’s managing director TV Narendran told ET in a recent interview. The company’s loss was on account of its European operations, he said, where a one-time deferred tax credit reversal and factors like high energy costs and accumulation of inventory put it in the red.

Similarly, Aditya Birla Group’s aluminium unit Hindalco saw its consolidated margins narrow due to demand tanking for its US-based subsidiary Novelis. The American company is a leading supplier of aluminium cans, the demand for which was low as user industries were destocking their can inventories, said Satish Pai, managing director of Hindalco.

JSW Steel’s American units were also underperformers during the quarter, even as the mainstay India operation saw a sequential recovery. Its operations in the US, which include manufacturing facilities in Ohio and Texas, reported $5.6 million of EBITDA (earnings before interest, tax, depreciation and amortisation) loss. However, the company’s Italian operations were on the up with €7.8 million of EBITDA, compared to €1 million in the preceding quarter.

Rival Jindal Steel & Power, which has mines in multiple countries including Australia, saw a drag on its financials because of its two coal mines Down Under. Of the two mines, only the Russel Vale mine is operational, but it is producing lower quality coking coal, which the company was forced to sell as cheaper thermal coal. Subsequently, realisation dropped from $197 per tonne in the September quarter to $69 per tonne during the December quarter, the company’s executives said during a recent analyst call.

The company expects the mines to become operationally viable from June this year as it invests in improving production.

As the energy price situation in Europe stabilises post winter, when prices reached a peak, and fears of a recession in the US also subside, the companies expect a turnaround in their overseas units beginning from the January-March period.

“We expect the fourth quarter numbers to be better than the third quarter numbers because India will continue to improve. And I think the worst is behind us as far as Europe is concerned,” Tata Steel’s Narendran said.

Hindalco’s Pai said along the same line that the worst was over for Novelis, with an end to destocking of aluminium cans expected in the ongoing quarter.