JSW Steel: Steel Production jumped by 31 percent

For the month of May, India’s one of the leading steel producers, JSW steel reported a crude steel production on a standalone basis at 17.89 lakh tonnes from 13.67 lakh tonnes in May 2021, a growth of 31 percent YoY.

The flagship company of a $22 billion JSW Group reported production of flat-rolled products to 12.84 lakh tonnes in May 2022 from 9.99 lakh tonnes in May 2021, seeing a growth of 29 percent YoY. While the production of long items rose by 25 percent on a YoY basis to 3.86 lakh tonnes for the month of May 2022. The production in the same month last year was 3.09 lakh tonnes.

Currently, JSW Steel has an installed annual crude steel capacity of 18 million tonnes in India, which comprises 12.5 MTPA of flat products and 5.5 MTPA of long products.

The share price of JSW Steel has declined by nearly 11% since the government levied export duty on steel effective 22 May. This along with low international prices has resulted in the domestic price of this commodity correcting significantly.

According to SteelMint, domestic hot-rolled coil prices dropped by 20% from the peak seen in April to ₹63,100 per tonne as of 8 June.

Management expects price declines to stabilize unless coking coal costs come down from present levels of around $400 per tonne.

However, the imposition of export duty means lower realization on shipments. Even so, the company will continue to export 15-20% of its production in FY23 in order to maintain long-term customer relations.

Relatively lower realization on exports by 15% and with exports accounting for 15% of management’s sales estimates, overall net steel realization can be impacted by 2.0-2.5% for FY23E.

But there is some respite from the softening of raw material costs such as coking coal and iron ore. However, this impact is expected to reflect in the financials with a lag. Thus, the company expects EBITDA per tonne to stabilize from Q2FY23.

On the demand front, there could be a slowdown in construction activity due to the upcoming monsoon season which would weigh on steel demand. On the other hand, the demand from the automobile sector continues to be firm with increased traction seen for passenger vehicles and commercial vehicles.

In H1FY23, the company anticipates mill-level inventories to rise but the channel inventories to be softer in the near term due to subdued demand. As prices stabilize, it foresees buying to re-emerge from the later part of June.