JSW Steel seen swinging to profit in Oct-Dec

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JSW Steel Ltd, India's No. 3 producer of the alloy, is seen posting solid third-quarter earnings as robust growth in the world's second-fastest growing major economy boosted demand, spurring production.

The firm will likely swing to a profit of 3.2 billion rupees in the October-December on a more than 50% jump in net sales to 42.7 billion rupees, a Reuters poll showed.

JSW's performance will mirror its Asian peers, who are also expected to turn in healthy earnings growth on strong sales in the region's emerging economies and better prices.

"Volumes are going to be much more higher than last year, that is going to be a major driver," Paresh Jain, sector analyst at Angel Broking, which has a 'buy' rating on the stock, said.

"They will also benefit on the raw material front as prices were nearly at the lower end," he added.

JSW's crude steel output for the quarter ended December rose 88% to 1.47 million tonnes as the firm expanded capacity at its mills in 2009 to meet growing demand.

Steel consumption has risen faster than production in April-November, led mainly by demand from housing, auto and infrastructure sectors. Output in the period grew 3% against demand growth of over 8%, steel ministry data showed.

Another reason for the surge in volumes was a lower base effect as demand slumped last year with major global economies slipping into a recession. Most steel companies at home had also cut production due to the steep fall in demand.

Receding Fears

Fears of oversupply from China have subsided, at least for now, as the country's surprisingly resilient demand for steel has lifted pessimism on the risk of oversupply, analysts said.

Many expect more demand to come after the Chinese New Year in mid-February as the government has committed to flexible economic support, while rising costs for raw material costs such as iron ore and coking coal will further boost steel prices.

Indian steelmakers have cut prices in the second half of 2009 due to a slump in demand and weak global prices, but a gradual pick-up in consumption and rising costs of key raw material is pushing up prices again.

Major steel firms including JSW raised prices in January across all products and analysts expect outlook to remain upbeat for the rest of this year.

"Towards the end of December, all steel companies raised prices. In fact, we have seen two rounds of price hikes. Volumes have also started picking up again. Outlook in the immediate term is good," said Prasad Baji, analyst at Edelweiss Securities.

Shares in JSW Steel have risen more than a fifth in the quarter to December compared with a narrow rise in the benchmark 30-share BSE index.