Ajoy K Das

Kolkata: Pushing ahead the Tata Steel strategy of raw material security, its recently acquired European subsidiary, Corus, is working on the acquisition of iron-ore mines that will yield 4-5 million tonnes (mt) of the raw material in the next one year.

This will help Corus increase its crude steel production by 7.5% to 21.5 mt by the next fiscal and this has been backed by fully securing raw material supplies through annual contracts that begin in April each year.

After meeting the Tata Steel management, analysts report that Corus, through fully securing raw material sourcing and higher crude steel production, will improve its financial performance over the next two quarters.

The price increase of finished steel will take care of 100% raw material cost increase for 70% of the product portfolio where sales are on spot markets.

In case of 30% product portfolio, where sales are through long-term contracts, the price increase will offset 60% of the rise in raw material costs.

Tentative indications provided by company management to analysts are that performance improvement programmes at Corus will yield cost savings of $ 300 million next fiscal and another $300 million in 2009-10.

These strategies to offset the rise in raw material costs by price increase in finished steel and cost savings have prompted analysts to forecast Corus’ earning before interest, depreciation and amortisation to grow by 7-10% next fiscal on year-on-year basis.However,Tata Steel officials were not available for comment on these performance forecasts.

Tata Steel is also readying to ride the steel boom with a greater production of the hot metal that is slated to go up by 1.3 mt to 6.83 mt, following the commissioning of a new blast furnace of 2.4 mtpa, in June 2008. This will result in an incremental sale of 3 lakh tonnes of pig iron and 1 mt of finished steel.

Analysts predicting a sharp improvement in the margins of Tata Steel said steel price in the domestic market could go up by $180-200 per tonne, based on the shortage of steel while raw material cost increase per tonne is predicted at $50.

However, differences have surfaced among industry analysts over the implementation of fiscal measures to rein in steel prices.

The government has already announced the withdrawal of export incentives under the duty entitlement passbook (DEPB) scheme. But the total volume export of industry at 4 mt is too small to impact margin realisations of Tata Steel, a sharper clampdown by government on steel prices through export tax and across-the-board slashing of duties on imported steel could make current steel price forecast go awry.

Till now, the Union steel ministry has just talked about cooling prices, but with inflation at 6.68% and rising food prices and strident protests by user sectors, steel producers’ headroom to hike prices may get squeezed by stronger government intervention.

Source : DNA