Indian steel companies will have it rough going ahead as the external environment looks to become increasingly challenging in key global consumption markets, rating agency ICRA said in its latest steel sectoral report on Friday, September 2.
Steel consumption in China, which accounted for 52 percent of global demand in the calendar year 2021, is trending downwards as the economy braces for the combined impact of the property bubble, stringent pandemic-induced lockdowns, and a severe heatwave, ICRA said.
A combination of an unprecedented inflation due to disruptions in energy and food supply chains following the Russia-Ukraine war and steep policy rate hikes by central banks to counter this are likely to stifle economic activities in the consumption hubs of the US, the European Union, Japan, and South Korea, which cumulatively accounted for 20 percent of global steel demand in 2021, the report said.
It said that India is the only bright spot with crude steel production growing at a healthy rate of 8.9 percent in the April-July period of the current fiscal year.
At the same time central and state governments combined capex spends are budgeted to increase by over 22per cent in the current fiscal year, and therefore expected domestic steel demand could be a robust 7-8 percent in 2022-23.
However, ICRA maintained that domestic steel prices will remain under pressure over the near term, since domestic steel prices cannot be insulated from the trends emerging in the global steel markets. The imposition of export duty on finished steel products, along with the slowdown in demand in international markets, has made exports unattractive.
ICRA had earlier expected India’s finished steel exports to contract 25 percent this current fiscal year. However, as early trends for the first four months (April-July) indicate only 600,000 mt of finished steel exports per month against an average of 1.12 million mt per month in the previous fiscal year, finished steel exports are more likely to witness a steeper decline of 40-45 percent in FY 2022-23.
Another negative surprise has been that exports of semis, which have been kept outside the ambit of duties, have failed to pick up so far, reinforcing the view of a subdued external demand environment, and therefore total steel exports, finished and semis, can be expected to decline by 55 percent in the current fiscal year, the ICRA report said.