Whalesbook
Steel manufacturers are bracing for a sequential profit decline in the December quarter, as persistent weakness in alloy prices continues to pressure margins. Despite stable or potentially rising volumes, the alloy's falling market price is expected to significantly dent earnings.
Price Weakness and Cost Pressures
Average prices for flat-rolled steel products fell by 4-5% in the October-December period compared to the previous quarter. Long steel products saw a more modest decline of 1-2%. Analysts estimate that these price drops will lead to blended realisations for steel companies falling by ₹1,500 to ₹3,500 per tonne. Compounding these margin pressures is an anticipated increase in the cost of coking coal, a key raw material.
Earnings Estimates Dip
The combination of lower selling prices and higher input costs is projected to shrink earnings before interest, tax, depreciation, and amortization (EBITDA) by ₹1,000 to ₹2,400 per tonne. Nuvama Institutional Equities noted in a pre-earnings assessment that Q3 FY26 EBITDA for the sector could fall between 10% and 21% quarter-on-quarter. Net profits are forecast to be between 10% and 40% lower sequentially. Steel Authority of India Limited (SAIL) is anticipated to experience the most substantial profit hit.
The September quarter is traditionally the weakest for steel producers due to monsoon impacts on demand and pricing. However, prices have continued to slide even after that period, indicating a broader market softening. Investors will be watching closely for how companies navigate this challenging pricing environment in their upcoming results.