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Tata Steel's Q2 margins squeezed by iron ore costs, weaker steel demand

  • Author
  • Hector Forster
  • Editor
  • Kshitiz Goliya
  • Commodity
  • Metals

London — India's Tata Steel group, which produces steel mainly in India and Northwest Europe, said steel-to-raw material price spreads during the April-June quarter had been squeezed by a combination of weaker steel prices and higher raw materials prices.

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Besides regional factors, steel prices across many regions declined last quarter due to global trade related concerns hitting investment and demand, Tata Steel said.

"A sharp rise in iron ore prices due to supply disruptions and elevated coking coal costs," hit margins, the company said in an update on Sunday.

"Global business confidence has dipped sharply in recent months amidst broader economic weakness and the uncertainty around the ongoing US-China trade conflict, which has had an adverse effect on investment decisions, capex spend and trade flows," Tata Steel said.

NW Europe indicative HRC steel to raw materials margins fell to average Eur229/mt ($258/mt) in Q2, from around Eur271/mt in Q1, after benchmark iron ore prices surged to average at over $100/dry mt CFR China during Q2, according to S&P Global Platts analysis.

Atlantic Basin iron ore blast furnace pellet contract prices rose over April-June, as higher iron ore fines reference pricing in China boosted invoices for FOB buyers in Europe, the Americas and northeast Asia.

Higher 65% Fe fines and continued strong lump premium pricing have pushed up overall steel making costs in Q2 for Europe, according to a Platts analysis.

Coking coal prices remain strong for benchmark grades, as China boosted demand during the period for higher quality and low impurity imports.

Tata Steel's fiscal Q1 steel production for Europe fell 5.3% to 2.66 million mt from the year earlier period, while steel sales fell 7.3% to 2.27 million mt.

Tata Steel said the decrease was a result of planned shutdowns and unplanned outages during the quarter.

"In Europe, the steel industry is facing significant headwinds in terms of lower economic growth and trade flow uncertainty that is impacting steel consuming products," Tata Steel said.

--Hector Forster, hector.forster@spglobal.com

--Edited by Kshitiz Goliya, kshitizgoliya@spglobal.com