Tata Steel Q2 net slumps, lags forecast
MUMBAI |
MUMBAI (Reuters) – Tata Steel missed forecasts with an 89 percent collapse in quarterly profit and warned of tough conditions for the next few quarters from volatility in raw material prices and weak demand in Europe.
The world’s No.7 steelmaker said persistently low demand in the construction sector in Europe, where operations account for two-thirds of its global capacity of about 28 million tonnes, was causing concern.
“The market is very cautious, in wait-and-watch mode. But I think the sentiment is worse than the underlying reality,” said Karl-Ulrich Kohler, head of its European operations.
“We reacted quite early by mothballing a few plants and with improvements in efficiency at others. We might extend similar measures in other areas,” he added.
The $500 billion global steel industry is facing an uncertain outlook, with several European firms cutting output in recent months.
Forecaster World Steel Dynamics last month pared its production outlook for 2011 to 1.52 billion tonnes, from a previous forecast of 1.535 billion.
Earlier this month, ArcelorMittal SA, the world’s largest steelmaker, said it expected a second-half slump in demand, and scrapped some investment plans.
Japanese steelmakers have also slashed their profit outlook while POSCO, the world’s third-biggest steelmaker cut its 2011 investment plan.
Tata Steel has already cut production in Europe to 80-85 percent of its annual capacity, from 85-90 percent in the first half of this fiscal year. It does not expect another cut in the December quarter but may make one in January or February, Kohler said.
Tata Steel expects volume growth at Indian operations, which account for a quarter of global capacity, of 7-8 percent annually, despite slowing economic activity and weakening demand from the construction and automobile sectors.
The company is scheduled to complete a planned expansion of its Indian capacity to 9.7 million tonnes by next March, from 6.7 million tonnes now. Tata Steel also operates units in Thailand and Singapore.
“The uncertainty in the global environment is fairly high and that is preventing companies like us from taking a view on outlook,” said Chief Financial Officer Koushik Chatterjee.
Q2 NET SLUMPS
Tata Steel reported net profit of 2.1 billion rupees ($42.2 million) for the fiscal second quarter ended Sept. 30, compared with net profit of 19.8 billion a year earlier.
Net sales rose 16 percent to 325.07 billion rupees.
A Reuters poll of 11 brokerages had forecast quarterly net profit of 9.8 billion rupees, on sales of 303.4 billion.
Tata reported an increase of $50 per tonne on average in prices of iron ore and coal in the September quarter while average steel prices in Europe fell by $30 a tonne.
Tata steel said it had total net debt of $9.2 billion at end-September, much of it from its $13 billion acquisition of Anglo-Dutch steelmaker Corus in 2007. Its debt stood at $9.1 billion at the end of June.
Shares in Tata Steel, valued at $9.2 billion, closed down 4.2 percent on Wednesday, ahead of the results. The stock has declined 34 percent so far in 2011, compared with the 15.3 percent fall in India’s benchmark index.
($1 = 50.2 rupees)
(Writing by Swati Pandey; Editing by David Cowell)
Article source: http://feeds.reuters.com/~r/reuters/INbusinessNews/~3/b9RJcOm9pd8/idINIndia-60449520111110
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