Tata Steel margins under pressure, in talks with Rio

Tue Feb 15, 2011 3:44pm GMT

* Q3 profit 10.03 bln rupees vs estimate of 11.1 bln rupees

* Sees 2011 Europe steel demand up 3-5 pct, India's 10-12 pct

* Interested in coal supplies from Riversdale,talking to Rio

By Prashant Mehra

MUMBAI, Feb 15 (Reuters) - Tata Steel (TISC.BO: Quote) said its margins would remain under pressure due to rising raw material prices, adding that it was in talks with Rio Tinto (RIO.AX: Quote) to ensure coal supplies from Africa-focused miner Riversdale (RIV.AX: Quote).
The world's No. 7 steelmaker on Tuesday said quarterly net profit more than doubled, driven by demand and pricing in Europe and robust growth at its Indian operations, but the company lagged estimates as higher raw material costs squeezed margins.
The $500 billion global steel sector has been caught in a margin squeeze since the middle of 2010, when raw material costs began increasing and steel prices dropped as activity slowed. While demand is improving from the auto sector, the other key market, construction, is struggling to pull clear of the crisis.

Tata Steel said it expected steel demand in Europe to rise 3 to 5 percent this year and demand in India to grow 10 to 12 percent, but managing raw material costs would be a key challenge.
"Margins are under pressure because we are consuming raw materials at inflated prices," Karl Kohler, head of Tata Steel's European operations, told reporters after the results announcement.
"Selling prices are recovering but the position needs to be maintained as impact of raw material costs is increasing."

Managing Director Hemant Nerurkar said Tata Steel was interested in securing coal supplies from Riversdale, in which it owns a 24 percent stake. Riversdale has received a $3.9 billion bid from Rio Tinto, which was backed by Tata Steel's representative on Riversdale's board.
"We are basically interested in securing coal supplies. We are discussing various options with Rio," Nerurkar said.

Tata Steel acquired Corus, Europe's second-largest steelmaker, for $13 billion in 2007, marking the largest overseas acquisition made by an Indian company so far.
European operations account for two-thirds of Tata Steel's global capacity of about 30 million tonnes, while the Indian operations contribute a quarter. It also has units in Thailand and Singapore.
Most global steelmakers have suffered sharp falls in December quarter profit. Last week, the world's largest steelmaker ArcelorMittal (ISPA.AS: Quote) reported profit lower than the previous quarter, but forecast a rebound in demand and prices at the start of 2011. POSCO (005490.KS: Quote), Nippon Steel (5401.T: Quote) and JFE (5411.T: Quote), some of the largest steelmakers, all suffered sharp falls in October-December earnings due to pricey raw materials and tepid demand.

Q3 PROFIT MORE THAN DOUBLES
Tata Steel reported a net profit after minority interest and share of profit of associates of 10.03 billion rupees ($220 million) for its fiscal third quarter ended December, compared with a consolidated net profit of 4.73 billion rupees a year ago.
Net sales were 286.06 billion rupees compared with 260.69 billion a year earlier.
A Reuters poll of brokerages had forecast a net profit of 11.1 billion rupees for the quarter, on net sales of 263.2 billion.
Last month, Tata Steel raised $770 million in a share sale in India to fund a 3-million-tonne capacity expansion at a plant in eastern India and repay a part of its $10 billion debt. [ID:nSGE70K06A]
Tata Steel said it had started preparatory work for a 6 million-tonne a year steel plant in the eastern state of Orissa.
Shares in Tata Steel, valued by the market at about $12.3 billion, are down about 9 percent so far in 2011, compared with about 11 percent fall in India's benchmark stock index .BSESN.
Ahead of the results, Tata Steel shares closed 0.4 percent lower at 616.55 rupees in a Mumbai market that rose 0.4 percent. ($1=45.5 rupees) (sourced:ThomsonReuters)

Tags:Tata steel, margins under pressure, Rio Tinto, Riversdale Mining Ltd., Europe, Q3, raw material, steelmakers, Corus, Thailand, Singapore, ArcelorMittal, POSCO, Nippon Steel Corp, JFE