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Tata Steel, JSW Steel boost financial performance on India demand

Companies plan to increase output as prices recover

Tata Steel aims to double its production capacity in five years.   © Getty Images

MUMBAI (NewsRise) -- The financial performance of Tata Steel and JSW Steel in January-March underscores the improving fortunes of Indian steel makers as increasing government investments in infrastructure boost demand for the alloy.

Tata Steel reported a profit of 146.9 billion rupees ($2.2 billion) in January-March, compared with a loss of 11.68 billion rupees a year earlier. The latest quarter had 113.76 billion rupees in exceptional gain related to the restructuring of its British pension scheme. India's biggest steel producer JSW Steel posted a record quarterly profit in the period, on the back of strong price and improving spreads.

The Tata Group flagship's operating earnings in India surged, though its domestic production volume declined due to a shut-down at its unit in Kalinganagar in Odisha, the company said late Wednesday. JSW Steel raised its capital expenditure outlook between fiscal year 2018 ad 2021 by 40% to 443 billion rupees, anticipating a shortage of the alloy in India in the next few years.

Domestic steel prices have been surging since November amid strong demand from the infrastructure sector. India's federal budget, announced in February, increased the spending allocation toward infrastructure in this fiscal year to $88 billion from $73 billion in the previous year. The move is expected to lead to a record 10% increase in domestic steel output, the government has forecast. Rising domestic steel prices and declining raw material prices have resulted in spreads -- the gap between price and raw material costs -- increasing by 18% over last three months, Deutsche Bank said in a report last week. "Such rising spreads on the back of increasing demand will help the domestic steel players to achieve robust profitability," it said.

Steel prices rose 22% in the fourth quarter. Spot prices are already up $30 per ton from the fourth quarter levels, analysts say.

Several other factors, including the decline in exports from China, helped firm up prices over the past few months. China, the world's largest producer of the alloy, announced curbs on production in a bid to check the rising air pollution in its cities. Most Indian steel steelmakers had been struggling to cope with competition from China, which flooded global markets with cheap alloy and pushed prices lower.

"On the steel outlook, we are closely watching the developments in global steel trade because of U.S. protectionist measures," T.V. Narendran, chief executive and managing director of Tata Steel, said in a statement. "However, we continue to be bullish on steel prices and spreads, with the improving demand situation in India."

In March, U.S. President Donald Trump announced hefty tariffs on imported steel in a bid to revive the country's local steel mills.

To tap into the surging demand, Tata Steel aims to double its production capacity in five years. The company is set to acquire the steel mills of troubled Bhushan Steel, which is among the largest of the 12 defaulters that India's central bank referred to bankruptcy courts for resolution last year.

Shares of Tata Steel lost 1.9% in Mumbai trading, while that of JSW Steel surged as much as 1.9% to touch their 52-week high. JSW Steel shares later pared the gains to close down 1.3%, while the benchmark S&P Sensex closed 0.7% lower.

--Dhanya Ann Thoppil

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