The flagship company of the Tata group, which is also the world’s sixth-largest steel producer, saw its standalone net profit falling to Rs 790 crore from Rs 1,488 crore in the year-ago period. Sales fell 8.7% to Rs 5,554 crore in the quarter, as customers postponed purchases in a falling market.

Prices of hot-rolled coils, the base-grade category, were hovering around Rs 26,000 per tonne in the April-June quarter, compared with Rs 45,000 a tonne in the same quarter last year. Prices, however, have started picking up in July, backed by the massive stimulus package in the US and a general improvement in the liquidity condition.

“But things are improving…here and globally,” said Tata Steel managing director B Muthuraman. The company’s European unit Corus has already raised steel prices by around $40 a tonne, while capacity utilisation in Europe may go up to 65% in the next quarter from 53% at present.

International operations are vital for the company, as Indian operations account for only 25% of Tata Steel’s combined capacity of 30 million tonnes. In fact, the group’s consolidated net profit for the quarter fell due to slow sales in Europe.

The first quarter saw a 22% rise in sales volumes in India, as demand for long steel products which are used in construction grew in anticipation of increased government spending in infrastructure.

On Wednesday, shares of Tata Steel fell 6.1% on BSE to end the day at Rs 442.35.

Worldsteel, an international trade body whose 180 members account for 85% of the global steel output, has predicted a 15% fall in steel consumption in 2009. The world body has forecast a gradual recovery for the industry next year.

One of the largest beneficiaries of the three-year bull run that started in 2005, the steel industry was also among the first to be affected by the global recession, which saw large mills in Europe and the US closing down, as prices plunged below the cost of production. The cascading impact of this trend took a toll even on large steel consuming markets such as India and China, with prices crashing by around 60% at one point.

Lower prices, coupled with higher raw material cost, almost halved the operating profit to Rs 1,742 crore. Tata Steel imports around 30% of its coking coal requirements. The cost of imported coking coal tripled in the last 12 months.
Tata Steel’s ferroalloy business, which accounts for around 5-10% of the total revenue, saw operating margin falling to 5% from around 50%, due to lower demand from stainless steel makers. Overall, the company’s operating margin contracted by 1,900 basis points to 31%.

Separately, the board of Tata Steel and unit, Hooghly Met Coke, approved a scheme of amalgamation of HMPCL with Tata Steel. Tata Steel currently owns 100% of the paid-up capital of HMPCL.
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