Margin contraction amid higher input costs was the common theme that played out across metal companies - ferrous and non-ferrous - during the first quarter of FY12. Though the cost of fuel and coal has come down in recent months, prices of steel and other base metals continue to remain volatile due to slowdown concerns in global demand. This may negate the effect of any reduction in production costs.

But that's not all these companies have to deal with. Since the beginning of August, the Supreme Court has banned mining activities in Karnataka's iron ore-rich districts. This will impact metals producers as well as miners like Sesa Goa and NMDC.

Even before the ban, revenues for Sesa Goa started to decline as a result of the export ban in Karnataka. The company lowered its volume growth target. Following the ban, its growth target is likely to fall even below the earlier state of 15% as it obtains onethird of its ore from Karnataka.

NMDC, on the other hand, has been allowed to mine in the state, but only up to one metric tonne a month. However, the company has been producing a mere 30% of what it's permitted to produce and will take at least a quarter or two to scale up production. As a result of this lower iron ore production, several steel makers have had to reduce production, the worst hit being JSW Steel, which sources about 50% of its iron ore requirement from the ban-affected areas. The company's first quarter sales growth at 54% was actually one of the highest among its peers. A repetition of the same is very unlikely over the next few quarters.

From the non-ferrous pack, Sterlite Industries outperformed its peers by a large margin. The company's sales grew 65% due to higher aluminium prices and improvement in copper treatment and refining charges. Better zinc, lead and silver prices also propelled earnings growth during the past quarter which is likely to sustain, going forward.

Over the past few weeks, base metal prices have fallen in line with the correction across asset classes on concerns of sluggish demand in the US and Europe. While this could restrict a rise in prices, there is also a possibility that the US will pump in more money to stimulate the economy, thereby supporting a rise in commodities - base metal prices.