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The metals sector had been severely impacted by the consumption slowdown in major
markets and has witnessed huge volatilities in raw material and finished product prices.
3QFY11 marked sharp recoveries in prices of base metals with near term bottom seen in
2QFY10. Opposite was true for ferrous products where raw material prices increased but
end products sequentially were at similar levels. However, towards quarter end, ferrous
products also saw price recovery though Australian floods have aggravated raw material
situation.
Ferrous companies helped by higher volumes
We expect steel companies to maintain their profitability sequentially in 3QFY11 as the
Indian volumes will improve but increase of raw material prices will have an impact during
the quarter. Thus, steel companies will witness compression in EBITDA per tonne for JSPL,
JSW Steel and Tata Steel however Sesa Goa is impacted by lower volumes on account of
Karnataka export ban and termination of Orissa contract.
Non-ferrous companies benefitted by rising prices
Sequential rise in metal prices will boost revenues of non-ferrous companies. Hindalco,
Nalco, Hindustan Zinc and Sterlite Industries will gain by rising output prices but the operating
costs might see an increase with rising input prices from coal.
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