Domestic steel consumption is poised to grow at around 7% in FY 2019 and FY2020, ratings agency ICRANSE 1.18 % has said, led by the government’s thrust on infrastructure, affordable housing, power transmission and the Railways. This prompted the agency to give a stable outlook for the steel industry, in its year end assessment of the sector. However, despite robust demand, domestic steel production growth is likely to remain low at about 2.5-3% in FY2019 due to increased threat from cheaper imports, combined with a considerable de-growth in steel exports due to rising global trade tensions.
ICRA expects domestic steelmakers to increase the capacity further by about 16 million tonne over FY2019 - FY2021. Additionally, with investments towards a ramp-up and debottlenecking of stressed assets taken over recently, this would lead to an industry capex estimate of Rs 750-800 billion between FY2019 and FY2021. The industry's capacity utilisation level is expected to remain at a healthy 82-83% between FY2019 and FY2021, supported by a favourable domestic demand and low greenfield capacities coming up in the medium term.
Export volumes are likely to stabilise however in FY2020, albeit at a lower level, with domestic steel production slated to grow at a higher rate of around 5.5-6%, supported by healthy domestic demand, the report added.
Also, a flat demand growth forecast for China in CY2019 would keep average international prices and thus domestic prices lower in FY2020, than the current year levels, the report predicted.
Elaborating on this trend, Jayanta Roy, senior vice-president ICRA said: “We believe that the steep reduction in international steel prices recently would make domestic steel imports cheaper in the coming weeks, when these shipments start hitting the Indian shore. This would in turn exert pressure on domestic steel prices in Q4 of FY2019.” Chinese hot rolled coil export offers have declined from US$ 560/tonne in the first week of October 2018 to US$ 476/tonne in the first week of December 2018.
Despite an expected reduction in margins in H2 FY2019 over H1 FY2019, the domestic steel sector’s overall profitability in FY2019 is likely to remain higher than the previous year levels due to improved performance in the first half.
Source: The Economic Times
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