India's Tata Steel warned rising raw material costs could hurt margins for a couple of quarters after posting its highest-ever annual net profit, bolstered by a surge in prices and demand in Asia's third largest economy.
The world's No.7 steelmaker, whose European operations account for two-thirds of its global capacity of about 28 million tonnes, said tepid demand in Europe was a cause for concern although it was seeing some positive turnaround signs.
"The outlook for 2011 is positive on the back of faster recovery in Europe and strong growth in emerging markets," Tata Steel's Chief Financial Officer Koushik Chatterjee (pictured) told reporters at a news conference, after the company announced results.
"But the environment remains challenging because of higher raw material prices," he said.
The $500 billion (£306BN) global steel sector has been caught in a margin squeeze since the middle of 2010, when raw material costs began increasing, but improving demand from the auto sector has helped boost steel prices.
Earlier this month, the world's No.1 steelmaker ArcelorMittal predicted higher profits in the second quarter, but Asian producers such as and Baosteeare still suffering depressed margins due to high raw material costs.
Tata Steel expects its Indian operations, which account for a quarter of its capacity, to see volume growth of about 10 per cent annually on the back of stronger government spending on infrastructure.
It expects to complete a planned expansion of its Indian capacity to 9.7M tonnes by March next year, from 6.7M tonnes now. Tata Steel also has units in Thailand and Singapore.
Last week, the company said it will cut about 1,500 jobs in Britain as part of a restructuring of its loss-making long products unit, and cut capacity at a plant in northern England.
Tata Steel said its consolidated net profit after taxes, minority interest and share of profit of associates jumped about 72 per cent to 41.78 billion rupees (£574m) in its fiscal fourth quarter, up from 24.34 billion a year earlier.
Tata Steel said profit for the quarter ended March included a one-time gain of $561m from its sale of certain assets of Teesside Cast Products to Sahaviriya Steel Industries.
A Reuters poll of brokerages had forecast quarterly net profit of 16.68bn rupees. The estimate does not include the one-time gain.
For the year to March, Tata Steel's consolidated net profit after taxes, minority interest and share of profit of associates stood at 89.83 billion rupees ($2 bbn), compared with a net loss of 20.09 billion rupees a year ago.
Net sales for the year rose nearly 15 per cent to 1.17 trillion rupees.
City A.M. Reporter