Tata Steel Ltd. (TATA), India’s biggest producer, reported an 89 percent drop in fiscal second-quarter group profit because of waning demand, foreign-exchange losses and higher raw material costs at its European operations.
Net income, including that of Tata Steel Europe Ltd., fell to 2.12 billion rupees ($42.2 million), or 1.75 rupees a share, in the three months ended Sept. 30 from 19.8 billion rupees, or 20.63 rupees, a year earlier, the Mumbai-based company said yesterday in a statement. The median profit estimate of 28 analysts in a Bloomberg survey was 8.39 billion rupees. Sales gained 16 percent to 325.1 billion rupees.
Rising costs of coking coal and iron ore and falling demand for steel have hindered producers’ efforts to overcome the industry’s worst slump in 60 years following the global recession. Commodity sales have waned since June on concern that Greece and other euro-zone members may default on debt and China’s economic growth has slowed.
Total costs rose 20 percent to 311.6 billion rupees, while raw material expenses climbed 15 percent to 108.3 billion rupees in the quarter. The depreciation of the Indian currency against the dollar affected Tata Steel’s exposure to foreign-currency convertible bonds by 1.5 billion rupees, Group Chief Financial Officer Koushik Chatterjee said.
The company had a net debt of $9.2 billion at the end of September, Chatterjee said. Income from sources other than the main business fell 85 percent to 1.2 billion rupees from 8.14 billion rupees, including a one-time gain, a year earlier, the company said.
Difficult Quarter
Tata Steel Europe Chief Executive Officer Karl-Ulrich Kohler said he expects the quarter ending Dec. 31 to be “difficult.” While the unit will maintain production this quarter, it may cut output in the following three months “if necessary,” he said, without elaborating.
Tata Steel Europe, which contributes about two-thirds of the group’s output and buys all the raw material it needs from outside, faced a 40 percent increase in coking coal prices, compared with a 14 percent surge in the price of steel hot- rolled coils. Cash iron ore prices at Tianjin port in China rose 28 percent on average in the quarter from a year earlier.
Commodity producers operating in India have reported lower earnings after the rupee’s depreciation. Vedanta Resources Plc (VED), the largest copper producer in India, said yesterday fiscal first-half profit dropped 92 percent on foreign-exchange losses.
Sesa Goa Ltd. (SESA), Steel Authority of India Ltd. (SAIL) and JSW Steel Ltd. (JSTL) missed profit estimates as the effect of foreign-exchange losses was exacerbated by higher raw-material costs.
Weakening Rupee
The rupee depreciated 8.7 percent last quarter, the most since 1992 and was the worst performer after South Korea’s won among Asian currencies, as Europe’s debt crisis prompted investors to pull money out of emerging-market assets. The currency lost 5.9 percent in September alone, the steepest slide since the Lehman Brothers Holdings Inc. collapse in 2008.
Tata Steel’s earnings mirror those of rival ArcelorMittal. (MT) The world’s largest steel producer reported on Nov. 3 third- quarter profit that missed analyst estimates and said it’s experiencing “volume and price pressures” in the final three months of 2011. ArcelorMittal, which has 16 of its 25 European blast furnaces in operation, has shuttered plants in France, Germany, Luxembourg, Poland and Spain in the past two months and announced the permanent halt of furnaces in Liege, Belgium.
Tata Steel fell 4.2 percent to 447.60 rupees at the close of trading in Mumbai on Nov. 9. The benchmark Sensitive Index declined 1.2 percent. The markets were closed yesterday on account of a holiday.
To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net
To contact the editors responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net Andrew Hobbs at ahobbs4@bloomberg.net
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