It has not been an impressive earnings show from global steel majors. ArcelorMittal, the largest steel producer in the world, is one which has reported a loss for the September 2012 quarter. The company has blamed economic struggles in Europe and China for its woes.
Going by that trend, it’s naïve to expect Tata Steel to stay the course. Though its Indian unit could be a saving grace, European operations pose a challenge. The enormity of the task at hand is gauged from the fact that the steel major derives nearly two-thirds of its revenues from Europe following its acquisition of the UK-based Corus.
The severity of the turmoil is showing up on other fronts, too. ArcelorMittal is currently operating only 14 of its 25 blast furnaces in the continent and further considering permanently closing down four more such facilities.
To cope with the crunch-like situation, Tata Steel is reported to be slashing production and going in for more layoffs. While the domestic market has been its source of strength, the start of European crisis could impact that as well. There are already some worrying signs here. Earlier in the month, while announcing its results, Posco has lowered its forecast for the year after taking a 25% hit in the bottomline. S&P rubbed it in by downgrading the company.
Slowdown in China means higher imports in India, which has zoomed 40% in the current fiscal. This adds to the pricing pressure for Indian companies.
The company though is sitting on a heap of debt, which given the extended slowdown in Europe is a cause of concern.
The stock has moved higher in line with the market from a low of Rs347 to a high of Rs426. However, it currently trades at around Rs400 level. The company can see more selling pressure in build-up for the result and can retest the low of Rs347.