India Ratings and Research (Ind-Ra) expects the operational performance of key domestic steel players to remain strong in the remainder of FY19, led by robust steel consumption demand, government spending on infrastructure and housing and a modest recovery in private capex cycle. A likely improvement in capacity utilisation rates would result in an improvement in operating profitability, due to better absorption of fixed cost, amid steady sales realisations during FY19, the agency said in 'Steel Portfolio Review FY19, its latest report on the sector.
With change in sector outlook Ind-Ra has reviewed its long-term ratings on JSW Steel Limited (JSWL), Rashtriya Ispat Nigam Limited (RINL) and Tata Steel Limited (TSL) during March-July 2018. While the rating outlook on JSWL was revised to Stable from Negative, the agency has maintained a Negative outlook on RINL. It has also maintained TSL’s rating on Rating Watch Evolving (RWE), and assigned ratings to Bamnipal Steel Ltd, a TSL subsidiary established to acquire Bhushan SteelNSE 2.80 % Limited.
It said the year FY19 will be a one of sector consolidation with revival of stressed steel assets in a conclusive environment. The agency expects the flat steel segment, in particular hot rolled coils (HRC), to get consolidated among top four domestic steel producers.
Among structural strengths it listed out China’s continuing capacity rationalisation efforts that are likely to help moderate the global oversupply situation. Operating margins would improve in the near term, benefiting from operating leverage with higher volumes as well as to some extent from the expected softening in coking coal prices, partly countered by inventory losses and steady steel prices on back of a strong demand. Increasing protectionism in global steel trade could pose risk to export margins it said though exposure to exports is limited to around 10% of available capacity. Further, the Indian steel industry continues to enjoy protection from cheap imports under the anti-dumping duty, it added.
Source: The Economic Times
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