International Steels Limited (ISL) is expected to report earnings of PKR 1.34 per share for the first quarter of fiscal year 2027, down 6% year-on-year, as rising zinc costs and a narrower spread between cold-rolled coil (CRC) and hot-rolled coil (HRC) prices put pressure on margins. No dividend is expected for the quarter.
Net sales are projected to increase 27% year-on-year to PKR 26.6 billion, supported by higher sales volumes. However, revenue growth is unlikely to translate into stronger profitability as elevated input costs continue to weigh on margins.
Gross profit is expected to decline 5%, while the gross margin is projected to narrow to 8.4% from 11.2% a year earlier. Profit after tax is estimated at PKR 581 million.
Zinc Surge And Narrower Spreads Hit Margins
Higher zinc prices and a shrinking gap between CRC and HRC prices are expected to remain key challenges for ISL during the quarter.
Zinc prices increased 31.1% year-on-year amid shifts in Western inventory levels and continuing geopolitical uncertainty. Meanwhile, average international HRC prices rose 8.9%, while CRC prices increased 4.7% in the preceding quarter.
The CRC-HRC spread contracted 23.1% to approximately US$53 per ton, placing it 20.4% below its long-term median of around US$67 per ton.
The narrower spread limits the pricing advantage available to steel processors and makes it more difficult to pass higher input costs on to customers. As a result, stronger sales volumes may not be sufficient to prevent further margin compression.
Higher Auto Output Provides Only Partial Offset
Demand from the automotive sector is expected to provide some support to ISL’s sales volumes, although the improvement may not fully compensate for pressure on profitability.
Production of two-wheelers and three-wheelers increased 28% and 20% year-on-year, respectively, reaching a combined 553,000 units during the quarter. Meanwhile, white goods production remained flat in the first month of FY2027.
ISL’s sales volumes are projected to rise 25% year-on-year to 124,000 tons. The increase would support revenue growth, but the impact on earnings is expected to remain limited by higher zinc costs and weaker CRC-HRC spreads.
The projected performance highlights the difference between volume growth and profitability, with stronger demand not necessarily translating into improved margins when input costs remain elevated.
Price Cuts And Business Restructuring
In September, ISL reduced prices of 1–2 mm galvanized sheets by PKR 18,000 per ton to remain competitive against Chinese imports.
The price adjustment reflects the competitive pressures facing local steel producers as they seek to retain market share while managing higher production costs.
The company has also fully exited its stake in China Engineering and Construction Limited following slow progress on the Reko Diq project. The exit removes any contribution from the associate to future earnings.
Together, these developments reflect changes in ISL’s pricing strategy and investment portfolio as the company navigates a challenging operating environment.
Earnings Outlook Depends On Steel Price Spreads
ISL’s near-term earnings are expected to remain under pressure, with profitability dependent partly on the movement of zinc prices and the recovery of the CRC-HRC spread.
A return of the spread towards historical levels could improve margins over time. Other potential sources of support include the increase in the FATA/PATA sales tax rate from 10% to 12% and the five-year extension of anti-dumping duties of 19.04% on Chinese cold-rolled coils.
These measures could provide support to formal domestic steel producers facing competition from imports. However, the extent of any improvement will depend on market pricing, input costs, demand and the company’s ability to maintain sales volumes.
For the first quarter of FY2027, higher revenue and projected volume growth are expected to be outweighed by margin pressure, leaving earnings below the level recorded a year earlier.