ICRA Ratings has revised the outlook for the Indian domestic steel industry to ‘positive’ from ‘stable’ following the best-ever quarterly financial performance during the April-June period of the fiscal year 2021-22, for all listed steel companies and well placed to sustain strong earnings for the current fiscal year, the ratings agency said in its latest steel sector report on Friday, September 3.
“The positive sentiment around steel-related commodities emanating out of China from the second quarter of the fiscal year 2021-22 has helped the ongoing metals rally sustain over four quarters, largely cushioning domestic large steel players from the impact of the pandemic,” the report said.
“After a seven percent contraction in steel demand last year following the pandemic, we expect domestic consumption to grow at around 12 percent in the current fiscal year, not only benefitting from a low base, but also from an improving outlook for several steel consuming sectors,” the report said.
“Steel production growth in the fiscal year 2021-22 is likely to be higher at around 14 percent, getting traction from the increasing trend in net finished steel exports. Our assessment indicates that net exports are expected to increase to around 8 million mt in the current year from 6 million mt last fiscal year, as domestic mills try to increase their export footprint, given the opportunity to fill-up the vacuum left by the Chinese mills due to the government’s curbs,” ICRA said.
“On the supply front, from JSW Steel and NMDC, 8 million mt of new capacities are expected to hit the market in the current year, but the same is likely to be absorbed by incremental steel consumption of 12 million mt this year, leading us to revise the industry’s capacity utilization rates to 78 percent this year, from 72 percent last fiscal year. Within that, the leading mills, however, are expected to operate at a significantly higher capacity utilization,” the report said.
On the raw materials front, ICRA said that iron ore prices in Odisha have started to moderate in the last one month, taking a cue from the 28 percent correction in seaborne iron ore prices since July this year, making ore exports less attractive.
This, coupled with a return of the pre-pandemic level of domestic iron ore production in the current fiscal year, has led to a correction in Odisha iron ore prices by around 20 percent since mid-July this year. As per ICRA’s estimates, this is likely to bring down the cost of steel production by around $50-55/mt, partly compensating for the cost increases emanating from costlier coking coal purchases.