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Corus show signals good times for steel |
Analysts are bullish on the prospects of the steel industry next year, with a turnaround by Tata Steel’s Corus... |
Mumbai [India] |
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Analysts are bullish on the prospects of the steel industry next year, with a turnaround by Tata Steel’s Corus indicating a revival in Europe.
Analysts expect Corus’s earnings to turn positive in this quarter on the back of higher production and better realizations. Anglo Dutch steel maker Corus was bought by Tata Steel in 2007 for $13 billion.
Corus will also benefit from its decision to shut down a plant in the UK and extensive cost-cutting programmes.
A recent report by Nomura predicts Corus to post earnings before interest, taxes, depreciation and amortization of $250 million in the third quarter of 2009-10 and $350 million in the fourth quarter of this fiscal.
Corus had reported a loss of $375 million in the second quarter of this financial year and been making losses for the past year, said Nomura.
The European operations that contributed more than 60 per cent to Tata Steel’s production have put quite a strain on the Tata Steel group balance sheet.
“What was a hope as far as Corus was concerned is becoming a reality,” said a steel analyst from a leading Mumbai-based brokerage.
Nomura expects Corus to post a profit of $500-600 million and an operating cash flow of $1 billion from 2010-11, heralding Tata Steel’s return to profit in the next fiscal.
A Corus spokesperson declined to comment.
The Tata Steel group management has, however, hinted in the past that a trend reversal in profit was expected in the second half of this financial year. The group suffered a loss of Rs 2,707 crore in the second quarter of this fiscal
The Nomura metals team is very bullish on steel in developed countries and sees an improved demand and low inventory levels.
Over the next two years, the brokerage sees high capacity utilization, a strong pricing environment and HR coil prices in Europe to average $743/tonne in calendar year 2010 and $789/tonne in calendar year 2011.
US recovery
Indian steel makers believe that the recovery in North America is also imminent. The newly appointed CEO of Essar Steel, Malay Mukherjee — who was formerly with ArcelorMittal — said, “Demand is looking up and that is reflected in price movements. In North America, prices have already gone up around $30 to $50 and these are expected to stick. The impact of the stimulus packages has started showing. So have the results of cost-cutting”.
Mukherjee believes that 2010 is going to be a better year than 2009. He expects that Algoma, an acquisition that the group made in Canada, will be working at full capacity next year.
Price push
An increase in the cost of raw materials is also expected to drive up prices, said an analyst who tracks the sector.
In India, where demand has been fairly robust compared with Europe and North America this year, steel makers have started raising prices.
Prices have also gone up recently in some overseas markets. On Friday, Tata Steel said it had hiked the price of long steel products by Rs 2,000 per tonne.
Credit Suisse Group AG said it recommended buying shares in steel makers rather than raw material suppliers into early-to-mid 2010 as demand in China might be set for a “potentially explosive recovery”. |
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