Tata Steel

Tata Steel Ltd. (TATA), India’s biggest producer, reported a worse-than-expected 90 percent drop in fourth-quarter profit as an escalating debt crisis in Europe lowered demand and prices in the steelmaker’s largest market.

Net income, including that of unit Tata Steel Europe Ltd., fell to 4.33 billion rupees ($79 million) in the three months ended March 31 from 41.8 billion rupees a year earlier, the Mumbai-based company said yesterday in a statement. The median profit estimate of 34 analysts in a Bloomberg survey was 8.81 billion rupees. Sales gained 1 percent to 338.6 billion rupees.

The gross domestic product in the 17-nation euro region stagnated in the last quarter, compared with the previous three months, the European Union’s statistics office in Luxembourg said on May 15. Steel demand in the European Union will drop about 2.7 percent this year, Eurofer, the European steel industry lobby group, said on May 7.

Total costs rose 5 percent to 319.1 billion rupees in the quarter, while raw material expenses fell 5 percent to 102.2 billion rupees, the company said. Earnings from sources other than the main business fell 39 percent to 2.22 billion rupees, the company said. Net debt increased to 476.97 billion rupees as on March 31, compared with 466.6 billion rupees a year ago.

Tata Steel shares fell 1.5 percent to 399.95 rupees in Mumbai yesterday. The benchmark Sensitive Index rose 0.5 percent. The earnings were announced after the market closed.
Debt Crisis

Steel deliveries for the quarter fell 6.5 percent to 6.22 million tons, underlining “operational difficulties” and lower demand in Europe because of the continuing debt crisis, Karl- Ulrich Kohler, chief executive officer at Tata Steel Europe, said in a statement.

The company expects production from its European mills to stabilize from January after a new blast furnace at Port Talbot starts production, Kohler said yesterday at a media conference in Mumbai. Lower raw material prices will improve margins for the European business and coal shipments from Mozambique’s Benga project should start this month, Managing Director H.M. Nerurkar said at the conference.

Tata Steel plans to increase output by 1 million tons this fiscal year from its Jamshedpur plant expansion, Nerurakar said. The company is arranging funds for a new plant in the eastern Indian state of Odisha, group Chief Financial Officer Koushik Chatterjee told reporters yesterday in Mumbai.

Tata Steel expects to start the first phase of the annual 3.5 million ton factory in Odisha as early as October 2013, Nerurkar said on April 20.
Fund Growth

The steelmaker has $2.4 billion of cash and cash equivalent and a capital structure that will support its ability to fund growth, Chatterjee said. The company expects to maintain its 1:1 net debt to equity position, he said.

The Indian operations may see a bigger impact of higher railway freight and increase in mineral royalties in this fiscal year, Nerurkar said yesterday.

Hot-rolled steel coil, a benchmark product used in automobiles and buildings, declined 11 percent to $703.50 a ton in the first quarter, compared with $793.70 a year earlier, according to Steel Business Briefing’s global price index. Iron ore, a steelmaking ingredient, averaged 20 percent lower than a year earlier, while coking coal fell 18 percent.

Steel demand in India may rise 8 percent this fiscal year after the nation’s central bank cut interest rates to boost growth, G.K. Basak, executive secretary at the steel ministry’s joint plant committee, said in an April 13 interview.

Global steel use will rise 3.6 percent this year, less than last year’s 5.6 percent increase, as European demand contracts and Chinese use slows, the World Steel Association said on April 27.