Q1 PREVIEW Ishita Ayan Dutt / Kolkata July 9, 2008, 0:14 IST The first quarter of the current fiscal is likely to be a mixed bag for the steel industry, which was asked to cut prices by the government as part of the steps to contain inflation. Integrated steel makers such as Tata Steel, which have captive raw materials, may post better results than its peers because it was able to absorb a part of the cost increase in raw materials. The sector is likely to report at least a 15-per cent jump in profit for integrated steel makers helped by about 25 per cent growth in sales. The growth in profit and sales of individual companies will be linked on the timing of the finalization of raw material contracts and their ability to absorb the cost push. Steel producers had to absorb most of the cost increases forcing it to keep spot prices, which accounts for between 30-40 per cent of the market, unchanged in the first-quarter because of its pledge to the government to help control inflation. Prices of the metal rose 17 per cent in the corresponding quarter of the previous year. However, coking coal, one of the important raw materials for the steel industry, rose more than 200 per cent in the year to over $305 a tonne, while another raw material iron ore's prices almost doubled. Tata Steel on a standalone basis has 100 per cent iron ore security and 60 per cent coking coal. The company may see a profit rise of 31 per cent in the three months ended June 30, helped by 22 per cent jump in sales. The operating profit margin of the steel maker is expected to be about 42 per cent, according to analysts. Ashutosh Satsangi, head (research) of rating agency Crisil, said, the operating margins in the coming quarter for non-integrated (without captive raw material sources) steel players would be around 16 per cent and for integrated would be around 27 per cent, which is a drop of 6-8 per cent from the nine months of 2007-08. Other integrated producers such as Steel Authority of India (SAIL) may say profit was little changed even as sales rose 24 per cent in the quarter because it imported 65 per cent of its coal requirement, hurting margin. The state-run company's operating profit margin is likely to be half, or at about 24 per cent of Tata Steel's, a survey showed. SAIL has 100 per cent captive sources for iron ore.JSW Steel has 25 per cent iron ore and imports 100 per cent coking coal, while other steel majors Essar Steel and Ispat Industries have no captive mines. Still, JSW profit may see a dip of about 9 per cent in the quarter because it settled contracts for coking coal. Seshagiri Rao, director-finance, JSW Steel said, the company settled its coking coal contract in April and hence most of the cost push would come in the first quarter. The cost push is a global phenomenon but the international companies have passed it on to the customers. international steel companies will see good first quarter results, Rao said. In India, the producers are in the middle of a three-month moratorium, which could be extended further to help the government tame in inflation. The difference between international and domestic hot rolled coil (HRC), a benchmark for flat products, is more than Rs 13,000 per tonne. Rao explained that even in the coming quarters, demand was expected to be strong but profitability would depend on whether costs could be passed on to the customers.