Steel Producers' Earnings: Tata Steel, SAIL Hoping Things Don't Turn Ugly

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Continued from Part One.

The “bad” spirit also affected another major, Tata Steel, and its performance at the global level.

The head of Tata Steel in Europe, Karl Kohler, on a visit to Europe two days ago, said there was a desperate need for a growth strategy in the UK, to deal with problems in the industry. Kohler was visiting the company’s Port Talbot plant, for the launch of the final phase of work to rebuild a blast furnace there.

Tata Steel, the biggest Indian steel company, has already hinted at the European conditions making a dent in its quarterly earnings. The market does not expect much from it, with the average view being of a major drop in consolidated profit.

Ratan Tata, Tata Steel’s chairman, has also predicted a challenging year ahead for profit growth.

“While Tata Steel’s operations in India are expected to remain strong, its operations in Europe will continue to be under enormous stress for the next year or two until the Western European economy recovers,” Tata wrote in his letter to shareholders, when the company’s annual report was presented earlier last week.

In what could be a step in tightening its belt, Tata Steel has also decided to merge two of its listed arms, Tinplate Company of India and Tata Sponge Iron, with itself. Speaking to the DNA newspaper, Tata Steel Managing Director H. M. Nerurkar said the strategy was to have control over the downstream as well, in order to create a fully integrated chain.

Ratings agency Standard & Poor’s (S&P) caught onto the weak sentiments within that company a day ago. According to a report by Reuters, S&P had revised the outlook on Tata Steel and its UK subsidiary, Tata Steel UK Holdings Pvt Ltd (TSUKH), to ‘negative’ from ‘stable’ to reflect the poor performance of the company’s wholly owned UK subsidiary.

S&P said it assesses Tata Steel on a consolidated basis, including TSUKH, which represents about half of the company’s total consolidated assets. It said it expects the company’s consolidated profit margin to continue to be weak, resulting in its debt-to-EBITDA ratio staying above 4x until the company’s India operations receive the full benefit of a recently commissioned 3 million tons of annual capacity. These benefits are expected to accrue only in fiscal year 2014.

With both these giants trying their best to salvage the situation from turning ugly, all eyes are set on the quarterly results of the Public Sector Unit (PSU) Steel Authority of India (SAIL) to be reported on Aug. 6.

Sohrab Darabshaw contributes an Indian perspective to MetalMiner.

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