Higher steel Prices in Pakistan drive companies’ earnings
Aftab Ahmed
Islamabad: The higher steel prices in Pakistan have pushed the profitability of the steel companies up, mainly due to improving margins and selling prices.
During 3QFY21, the accumulative profitability of selected steel companies rises to Rs7.7 billion compared to Rs7.0 billion in 2QFY21, mainly due to higher selling prices in Pakistan today.
The improving margins also contributed to the profitability of the steel companies due to higher prices.
During 3QFY21, the accumulative profitability of selected companies stood at Rs7.7 billion compared to Rs7.0 billion in 2QFY21 due to mainly higher selling prices of steel and improving margins in Pakistan.
Sector gross margins inched up 3ppts QoQ to 21% during 3QFY21, against 18% in 2QFY21. Besides higher prices and low-cost inventories, inventory gains also enhanced margins.
Flat steel profitability rises on rising prices, inventory gain
In 3QFY21, flat steel profits stood at Rs4.6 billion compared to Rs4.1 billion in 2QFY21 (up 13%QoQ). While top-line inched up by 2%QoQ to Rs32.7 billion despite lower volumes, higher domestic CRC/GI prices (up 17%QoQ) kept revenue growth in positive territory.
We estimate sales volume declined by around 11-12% during the quarter under review due to suppressed demand as domestic flat players in Pakistan increased per ton by Rs16,000 since December 2020 to pass on the impact of higher international steel prices.
Flat steel gross margins increased 3ppts QoQ to 24% in 3QFY21 compared to 21% in 2QFY21. Besides higher prices, inventory gains similar to the previous quarter also kept margins elevated.
Higher prices, low-cost inventories lift steel profitability
In 3QFY21, long profitability increased by 13% to Rs2.2 billion against Rs1.9 billion in 2QFY21 due to higher selling prices of steel in Pakistan. Sector top-line stood at Rs25.4 billion, showing a slight decline of 4%QoQ as improved rebar prices (up 13%QoQ) arrested revenue decline caused by lower volumes.
We believe demand for prime rebars was hurt by the rising delta between prime and sub-prime/un-graded rebars to the tune of Rs15,000-20,000/ton during 3QFY21 from Rs10,000 observed historically, Sherman Securities said in a report. In addition, market participants were also expecting international scrap prices to come down, which, in turn, would have lowered domestic rebar prices.
Long steel gross margins increased by 4ppts QoQ to 18% in 3QFY21 compared to 14% in 2QFY21. Thus, higher prices and low-cost inventories enhanced margins during the outgoing quarter.
Rising prices elevate 3Q profitability
Following result announcements from major listed steel firms, we review the sector’s, 3QFY21 profitability. The steel sector’s profits increased by 10% sequentially on rising prices of steel and inventory gains despite lower volumes in Pakistan. Its analysis depends on unconsolidated earnings of key steel companies, representing around 88% of the sector’s total market capitalization in Pakistan.
