India’s domestic steel consumption to moderate to 7-8 percent in fiscal 2024-25, against previous estimate of 12-13 percent, owing to reduced government spending in an election year, rating agency ICRA said in a report on Friday, March 8.
Elevated input costs, import pressures along with softer steel prices and a temporary deceleration in domestic demand growth close to the elections, and a weak external environment, will be challenging for the industry, the rating agency said in the report.
“With most large steel-consuming hubs globally facing subpar economic activities in the near term, global steel trade flows have been increasingly redirected to high-growth markets like India. India is set to become a net finished steel importer in 2023-24 after five years, with export prospects remaining soft, ICRA said.
“Unless the external environment meaningfully improves from here on, India could continue to remain a net steel importer in the next fiscal as well,” it said.
In the six-month period between June-November of 2023, as the government accelerated infrastructure spending ahead of the general elections, domestic steel demand grew at a brisk pace of around 16 percent over the same period in the last financial year. The demand conditions helped pull up the industry capacity utilisation to a decadal high of 88 percent in in 2023-24.
However, in December 2023 and January 2024 there has been a marked slowdown in the consumption growth to just 6.5 percent, the rating agency said in the report.
On the cost side, higher coking coal consumption costs, along with a 25-30 percent increase in domestic iron ore prices (ex-mines basis) since August 2023, were expected to nibble at the industry’s profitability second half of 2023-24, pushing second-half earnings of steel mills markedly lower than the first half of the current financial year, ICRA said.