In a special report issued on Wednesday, January, 20, international credit rating agency Fitch Ratings has said that it expects the 2010 outlook for the Indian steel sector to be stable in reflection of the improving domestic demand and despite global overcapacity. The report on the Indian steel sector indicates that an industry-wide improvement in the overall liquidity situation is expected.
Meanwhile, Fitch warns that a large part of demand improvement is driven by the fiscal stimulus of the Indian government and that replacement with private sector demand would be a critical determinant of the growth rates for 2010.
The report notes that, with inflationary pressures likely to spread to the general economy, government policies on tackling inflation through a reduction in import duties could also have a potential impact on the fortunes of the industry in 2010.
Fitch notes that Indian steel prices, which have been higher than the international prices in 2009, are expected to mirror international prices in 2010.
Fitch believes that the 2010 benchmark iron ore price settlement will be in the range of 15 to 20 percent higher than the current benchmark contract price of $54/mt FOB settled by Vale or the $62/mt FOB contract price settled by Rio Tinto in 2009. Fitch also expects benchmark hard-coking coal contracts to be settled at about 30 to 50 percent higher in 2010, given currency movements as well as tight supply.
Liquidity, however, should also remain comfortable with better working capital management and greater access to debt and equity markets, Fitch says. The institution also believes that, with the kind of capacity expansion projects in the pipeline, there is the potential risk of long-term over-capacity, which could put prices under pressure.