Asian Growth Encourages Tata Steel to Go Shopping

 |  Includes: MT, NISTY, TATLY
by: World Market Pulse

Driven by Asia’s huge demand for steel and iron ore, Tata Steel (OTC:TATLY) -- one of India’s largest steel companies and ranked as the world's seventh-largest steel maker -- is looking at further acquisitions in order to boost its capacity to meet booming demand at home and throughout the Asian region. Although last month the world's largest steel maker, ArcelorMittal (NYSE:MT), disappointed markets with its fourth-quarter profit estimate, and Japan's Nippon Steel (OTC:NISTY) said it is likely to struggle to meet its full-year forecast, Tata Steel has announced plans to raise up to $1.6 billion in additional capital to trim debt and invest in its European business, driven by impressive earnings for the September quarter.

Tata Steel Q2 Highlights: The steel maker reported net profit after taxes, minority interest and share of profit of associates of 19.79 billion rupees ($442 million) for its fiscal second quarter ended September, compared with a consolidated net loss of 27.1 billion rupees a year ago. Net sales were Rs280.91 billion, compared with Rs252.76 billion a year earlier. A poll of nine brokerages had forecast a net profit of Rs15.3 billion for the quarter, on net sales of Rs258.3 billion.

Understanding the Steel Sector's Chinese Equation: Higher raw material costs and an overall gloomier economic outlook are overshadowing a solid April-June period. The $500 billion steel industry profited in the second quarter from a strong auto sector and booming demand in China, which has since cooled off a bit. Nevertheless, according to forecasts released by the World Steel Association, it believes that the global use of steel will jump 13% this year compared with 2009, signifying a robust recovery on the depressed conditions of 18 months ago. In April, the World Steel Association said the global steel industry was recovering faster than expected, but demand has slowed since then, held back by a gloomier economic outlook and destocking in China.

Asian Steel Prices: Meanwhile, spot steel prices in the domestic market recovered this week on falling inventories, after rate rise concerns led to a decline last week. Rebar inched up to 4,540-4,550 yuan PMT in Shanghai on Thursday, up 2% from a week earlier.

Disclosure: No positions.