The Indian steel industry’s absolute profitability metrics will remain healthy in the next 12 months even though higher input costs and softening steel prices will hurt earnings, rating agency ICRA said in a sectoral report on Tuesday, December 7.
ICRA has maintained a “positive” outlook for the industry and, while higher input costs are hurting producers, input costs pressures on domestic mills could moderate slightly in the later part of the fourth quarter of the fiscal year 2021-22 and the benefits of which will be reflected in margins of mills after a lag of two to three months.
In the second quarter (July-September) of the fiscal year 2021-22 despite a sequential moderation in steel margins due to cost pressures, mills were able to record another record all-time high quarterly profit, riding on higher deliveries following the recovery of the economy after the second wave of the pandemic, the ICRA report said.
However, if the rapid spread of the Omicron variant leads to an unanticipated disruption in economic activity in the key steel-producing hubs, then the industry could see an accelerated process of reversion of spreads in the fiscal year 2022-23, much sooner than what is anticipated today. This remains a key risk which could well determine the durability of the current upcycle, ICRA said.