Pricing gains ahead for Tata Steel

Management guidance is optimistic with the company witnessing stronger prices in both India and Europe, though coking coal costs are also expected to rise, affecting its production cost.

With the worst in terms of pricing pressures behind Tata Steel, its outlook is expected to improve.

Ground reality

Europe has seen hot rolled coil prices rise this January after the European Union’s (EU’s) carbon border adjustment mechanism (CBAM) kicked in and further price improvements may be on the cards once import quotas come into play in June.

India’s demand is up and is expected to rise further in the fourth quarter of 2025-026 (Q4FY26) when the delayed safeguard duties have finally been imposed.

This delay may have led to lower prices in Q3FY26.

The December quarter results were in line with the Bloomberg consensus or a little better.

Management guidance is optimistic with the company witnessing stronger prices in both India and Europe, though coking coal costs are also expected to rise, affecting its production cost.

Capex plan

While the capital expenditure (capex) plan continues, and net debt is above Rs 81,000 crore, the rest can be funded through internal accruals — as a result, net debt should not rise from these levels.

Total capex guidance is at Rs 16,000 crore-Rs 18,000 crore for FY26, focused on Kalinganagar rampup, downstream additions and debottlenecking.

Revenue, net profit

Tata Steel standalone revenue for Q3FY26 stood at Rs 35,600 crore, up 9 per cent year-on-year (Y-o-Y) and up 3 per cent quarter-on-quarter (Q-o-Q).

Steel production stood at 6.1 million tonnes (up 12 per cent Y-o-Y and Q-o-Q), with higher volumes at Jamshedpur and Kalinganagar.

Average selling prices (ASP) were muted at Rs 58,905 per tonne, down 5 per cent Y-o-Y and falling 6 per cent Q-o-Q.

Standalone adjusted net profit for the quarter stood at Rs 4,170 crore (up 4 per cent Y-o-Y and down 7 per cent Q-o-Q).

Europe’s combined revenue stood at Rs 19,500 crore, flat Y-o-Y and down 10 per cent Q-o-Q on account of lower volume and net sales realisations in Q3.

The profitability of the Netherlands’ operations dropped while Tata Steel UK’s operating loss was flat Q-o-Q.

The per tonne loss at the operating level was at $10/tonne in Q3FY26, as compared to a loss of $42 per tonne in Q3FY25 and positive operating profit of $8 per tonne in Q2FY26.

Cost savings/benefits

The firm achieved Rs 8,600 crore of cost savings in the April-December period of FY26 (9MFY26), representing 93 per cent execution of the internal cost takeout plan.

In Q3FY26 it achieved Rs 3,000 crore of cost benefits, led by the Netherlands (Rs 1,600 crore), India (Rs 890 crore) and the UK (Rs 570 crore).

Consolidated revenue was Rs 57,000 crore, up 6 per cent Y-o-Y and down 3 per cent Q-o-Q, meeting expectations.

Sales volume stood at 8.21 million tonnes and was up 4 per cent Q-o-Q, which was offset by a low ASP of Rs 69,430 per tonne (flat Y-o-Y and down 6 per cent Q-o-Q) in Q3FY26.

Operating profit

Consolidated operating profit was at Rs 8,200 crore, up 15 per cent Y-o-Y and down 8 per cent Q-o-Q, with an operating profit per tonne of Rs 9,987.

Neelachal Ispat Nigam posted an operating profit of Rs 350 crore, up 35 per cent Q-o-Q.

Overall net profit came in at Rs 2,740 crore, up 271 per cent Y-o-Y and down 16 per cent Q-o-Q, driven by lower tax.

Tata Steel’s management believes Q3FY26 is the bottom for domestic steel prices, particularly for flat products, with Q4FY26 likely to see a sequential improvement in prices and operating profit per tonne.

Guidance

Guidance is for Rs 2,300 per tonne Q-o-Q improvement in India realisations in Q4, as spot steel prices in India have improved but coking coal costs are expected to be higher by $15 per tonne in that quarter.

India steel volumes in Q4FY26 are expected to be 0.5 million tonnes higher as compared to Q3FY26 and overall volume gains could be around 10 per cent.

Auto contracts in India are due for renewal from April and prices are expected to reset higher.

European steel price

The realisations for the Netherlands operations are expected to dip by 30-33 euros per tonne Q-o-Q in Q4 but its operating profit is expected to improve on cost takeouts and higher volumes by 0.4 million tonnes Q-o-Q.

UK steel prices are depressed at 500–510 pounds per tonne.

Management expects the loss to reduce in Q4 with the UK government to implement measures by the middle of 2026 to safeguard local steel players.

The capacity increase in the Netherlands and lower fixed costs should support future operating profits.

European steel prices have a medium-term upside potential of 100 euros per tonne, driven by CBAM implementation and safeguard revisions.

Near-term uncertainties persist with trade barriers (CBAM, tariffs, and import quota reduction), but the long-term outlook is better and Q4FY26 should see significant improvements with further gains through the medium term.

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