Tata Steel reports Rs2,127-cr Q3 loss as cheap imports bite

Tata Steel has reported a consolidated net loss of Rs2,127 crore in the October-December 2015-16 quarter, against a profit of Rs1,529 in the previous quarter and a Rs157 crore profit in the same period last year, as demand waned both in India and abroad amidst cheaper imports.

Tata Steel Ltd, which has global operations, blamed cheap imports from China, Russia and South Korea for loss of market and over 3,000 jobs at its UK unit, as the company tries to cope with the global steel crisis.

Net sales were down 17 per cent at Rs27,819 crore during October-December 2015-16 against Rs33,328 crore in the same quarter last fiscal. The company has made a provision of Rs615 crore for restructuring its European operations.

On a standalone basis, Tata Steel reported a net profit of Rs453 crore, a nearly 50-per cent fall year-on-year compared to Rs881 crore in the year-ago quarter. Net sales dipped 8 per cent to Rs8,991 crore compared with Rs9,824 crore in the same period last year.
While the lacklustre financial performance can be attributed to subdued demand in the country, Tata Steel pointed to a surge in imports due to excess supply in the global steel markets.

Over the last year, global steel prices have declined sharply from around $460 per tonne to around $260 a tonne in line with the glut in supply and the sharp decline in raw material prices.

Iron ore prices have dropped from around $68 per tonne to around $40 a tonne while coking coal has dropped from $115 a tonne to around $80 per tonne.

Steel exports from countries such as China, Russia, Korea and Japan have surged to all-time highs on the back of lacklustre domestic demand, excess capacity and competitive currencies. Imports to India are now around 12 mtpa, with China being the largest exporter to India.

Similarly, imports to Europe have increased to around 30 mtpa million tonnes, with shipments from China surging by 57 per cent. These unfairly priced imports are distorting the demand-supply balance in many regions, depressing domestic prices and undermining the profitability of many large steel producers.

China makes nearly half the world's 1.6 billion tonnes of steel, and exported over 100 million tonnes of the alloy last year, more than four times the 2014 shipments from the European Union's largest producer, Germany.

Indian steel demand remained subdued post monsoon quarter due to sluggish uptick across key steel consuming sectors like construction, general engineering and infrastructure. Rural demand also remained muted.

The oversupply in global steel markets coupled with relative stability of Indian rupee versus dollar as compared to other and currencies has made India a favoured import destination.

India saw a surge in net imports from countries such as Japan, Korea and China which grew by 143 per cent year-on-year in the first nine months of FY'16 and 67 per cent y-o-y in Q3 FY'16. As a result, the domestic steel prices retreated sharply in line with international steel prices.

TV Narendran, managing director of Tata Steel, said the company is focusing on measures to bring down cost, increase sale of value-added products and improve exports to realign the company with new market realities.

''We expect to commence commercial production at the Kalinganagar plant in Odisha by end of this fiscal. Our South-East Asian operations are stable despite the flood of cheap imports in the region,'' he said.

The company has spent Rs8,800 crore so far during the fiscal at Kalinganagar. On the whole, Tata Steel has invested Rs23,000 crore in the much-delayed greenfield project.

Karl-Ulrich Kohler, managing director, Tata Steel Europe, said Chinese steel shipments into Europe were up over 50 per cent last year, while imports from Russia and South Korea jumped 25 per cent and 30 per cent, respectively. The European steel association has identified that China is exporting steel at prices below the cost of production, leading to unfair trade and undercutting domestic producers, he said.

Shares of the company, however, rose 1 per cent to Rs226 on Thursday.