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Tata Steel Gains on Prospects for Higher Prices, Lower Costs: Mumbai Mover

Tata Steel Ltd. (TATA), India’s biggest producer, jumped the most in four weeks as prospects for higher alloy prices and lower input costs attracted investors undeterred by a loss from writing down inventory.

The Mumbai-based steelmaker climbed 5.1 percent, the most since Jan. 13, to 475.05 rupees at the close of trading in Mumbai. The stock has advanced 42 percent this year, compared with a 15 percent gain in the benchmark Sensitive Index. (SENSEX)

The company yesterday reported a loss of 6.03 billion rupees ($122 million) for the three months ended Dec. 31, following a one-time charge of about 7.4 billion rupees at Tata Steel Europe Ltd. and other units due to a drop in steel and raw material prices. The loss contrasts with a profit of 10 billion rupees a year earlier and the median profit forecast of 2.57 billion rupees in a Bloomberg survey of 28 analysts. Sales gained 15 percent to 329.6 billion rupees.

Although the earnings before interest, taxes, depreciation and amortization “came below consensus it was mainly due to a one-time write-off on their stock,” said Sagar Karkhanis, an analyst at Nirmal Bang Equities Pvt. in Mumbai. Without the write-off, “there was no negative surprise,” he said.

A decline in the prices of iron ore and coking coal and a pick-up in construction in India will boost the demand for the alloy, said Deven Choksey, managing director at Mumbai-based brokerage K.R. Choksey Shares & Securities Pvt. The cost of iron ore at China’s Tianjin port has slid about 20 percent to $142.80 a ton since September, while quarterly contracted prices for coking coal have slid 17 percent to $235 a ton from the previous quarter, according to data compiled by Bloomberg.

Higher Prices

Tata Steel increased prices by 1,000 rupees a ton in February, Group Chief Financial Officer Koushik Chatterjee said today on Bloomberg-UTV television channel, without giving a percentage gain. Prices are rising in the U.S. and demand in Europe is improving he said.

Steel prices in India may extend gains in the next few months after rising in January, partly because exporters in China are forecast to increase prices, MEPS (International) Ltd., a U.K.-based industry consultant, said in a Feb. 2 report. Steel Authority of India Ltd., the nation’s second-largest producer, said it increased prices of some of its products by as much as 3.9 percent, effective Feb. 1.

“The current quarter is showing some signs of improvement for the company’s Europe operations, with costs coming down and steel prices inching up,” Choksey said in a telephone interview. “The pick-up in construction activity here should boost metal prices.”

Europe Crisis

The debt crisis in Europe, which contributes about two- thirds of Tata’s production, has cut steel demand and prices. Global use of the alloy will rise 4.5 percent in 2012, the slowest in three years, according to the median estimate of 14 steelmakers, analysts and traders surveyed by Bloomberg.

Tata Steel’s total costs rose 22 percent in the quarter to 325.5 billion rupees, while raw material expenses climbed 21 percent to 126.2 billion rupees in the quarter. Tata Steel, which had a net debt of $9.52 billion rupees as of Dec. 31, earned 1.38 billion rupees from sources other than its main business, the company said.

Tata Steel Europe Chief Executive Officer Karl-Ulrich Koehler in November predicted a “difficult” third quarter. The European unit, which buys all the raw material it needs from outside suppliers, faced an increase in coking coal prices, compared with a 3.5 percent increase in the price of steel hot- rolled coils in the last quarter.

Demand Rebound

Demand for the alloy is expected to improve should India’s central bank lower interest rates, Managing Director H.M. Nerurkar told reporters yesterday in Mumbai. The Reserve Bank of India increased interest rates 13 times since the start of 2010 to curb inflation. Subir Gokarn, the deputy governor of the bank, said last month the monetary cycle has peaked.

Tata Steel plans to add 2.9 million tons of annual capacity at its Jamshedpur facility this quarter, taking total production to 10 million tons, Nerurkar said.

The company on Dec. 2 said it mothballed the Llanwern hot strip mill in Newport, U.K., cutting 115 jobs. The mill will remain shut until the U.K. economy and steel demand justify a restart, it said then.

Rival ArcelorMittal (MT), the world’s largest steel producer, reported on Feb. 7 fourth-quarter earnings before interest, tax, depreciation and amortization fell to $1.71 billion from $1.85 billion a year earlier. That compared with the $1.68 billion median estimate of 16 analysts surveyed by Bloomberg. First-half Ebitda is likely to exceed results in the prior six months, while still being lower than a year earlier, the company said in a statement.

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editors responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net; Andrew Hobbs at ahobbs4@bloomberg.net

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