Why Steel companise may continue to face challenges

Industry Challenges and Recovery Prospects

Pakistan’s long steel sector has encountered difficulties due to high inflation levels and weak demand from the construction sector. Recent financial results from Mughal Iron & Steel Ltd (MUGHAL) and Amreli Steels Ltd (ASTL) reflect the subdued demand scenario.

The return to normal demand levels is anticipated to act as a positive catalyst for steel companies, although ongoing challenges persist. The sector may experience a resurgence, potentially spurred by interest rate cuts injecting new life into long steel stocks.

Extension of Anti-Dumping Duties Provides Relief

An extension has been granted in anti-dumping duties on steel bars imported from China, as per the recent notice by the National Tariff Commission (NTC). This extension benefits the local long steel industry by safeguarding against potential negative impacts on capacity utilization and market share.

Financial Performance of MUGHAL and ASTL

MUGHAL Posts Loss in 3QFY24

• MUGHAL recorded a loss before tax in 3QFY24, with EPS at Rs0.31, showing a significant decline on both a year-over-year (YoY) and quarter-over-quarter (QoQ) basis.
• Gross margins decreased by 12 percentage points (ppt) YoY and 3 ppt QoQ, primarily influenced by lower sales in the non-ferrous segment.
• Higher energy costs and elevated finance costs contributed to the loss before tax, offset by a tax reversal.

ASTL Remains in the Red Zone

• ASTL reported a loss of Rs666 million for 3QFY24, compared to a positive bottom-line last year.
• Gross margins declined by 10 ppt YoY and 2 ppt QoQ, reflecting weak sales and higher input costs.
• Operating margins also decreased significantly YoY and QoQ due to ongoing challenges in the sector.

Financial Performance of MUGHAL and ASTL

MUGHAL Posts Loss in 3QFY24

Metric	3QFY24 Value	YoY Change	QoQ Change
EPS	Rs0.31	-92%	-87%
Gross Margins	7%	-12 ppt	-3 ppt
Non-Ferrous Segment Sales	-32%
Operating Margins	6%	-12 ppt	-4 ppt
Finance Cost (YoY)	+71%

ASTL Remains in the Red Zone

Metric	3QFY24 Value	YoY Change	QoQ Change
Loss	Rs666mn
Gross Margins	8%	-10 ppt	-2 ppt
Operating Margins	3%	-11 ppt	-2 ppt
Finance Cost (YoY)	+30%

Overall, both MUGHAL and ASTL continue to face operational difficulties amid low demand and higher input costs.

Disclaimer

The information in this article is based on research by Js Research. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.