Steel demand picks up in first 9 months of FY18: ICRA

KOLKATA: A pick up in domestic steel demand paired with sustained buoyancy in the auto sector and a recovery in construction and capital goods alongwith consolidation in the sector as part of the insolvency resolution of stressed steel assets is tipped to favour production growth in steel sector, according to ratings agency, ICRA.Steel demand growth has improved to 5.2% in nine month period of FY2018 as against 4.5% in seven months of FY2018, aided by a healthy growth rate of 6.2% reported in the month of December 2017. Going forward, ICRA said it expects the domestic consumption growth to remain favourable on the back of the Government’s thrust on infrastructure, in particular towards affordable housing, power transmission and the Railways in the Union Budget 2018-19. A combination of favourable domestic demand, remunerative prices in both international and domestic markets, and lower growth in imports are likely to support domestic steel production growth in the near term.Commenting on the possible trends in the steel sector, Jayanta Roy, senior vice-president, ICRA said: “After two consecutive price hikes totaling to Rs 3000/tonne effected by domestic steelmakers in Q4FY2018 due to improving demand, rising raw material costs, and a buoyancy in international steel prices, ex-works prices of domestic hot rolled coil (HRC) reached Rs 43,000/tonne in the fourth week of February 2018.” Despite these sharp hikes, domestic HRC prices are still marginally cheaper than landed cost of Chinese HRC export offers, he noted. “However, with the lifting of winter production curbs in China post March 2018, international steel prices are likely to correct somewhat and would in turn exert pressure on domestic steel prices in Q1 FY2019,” he added.ICRA said for a sample of 22 large and mid-sized steel companies accounting for about 60% of the current domestic capacity, the operating margins improved to 18.8% in Q3FY2018 from 15.8% in Q2FY2018 and 16% in Q3FY2017 supported by better realisations in both domestic and export markets. In the current quarter, blended coking coal price is expected to be sequentially higher by around US$ 25/tonne. Moreover, given the lower domestic iron ore availability in Q4 FY2018 due to a supply disruption in Odisha, cost of iron ore is also expected to be sequentially higher by around Rs 700/tonne. “Despite this cost push, gross contribution of a domestic blast furnace player is expected to see a marginal increase in Q4FY2018 over Q3FY2018, supported by the increase in hot rolled coil prices,” ICRA said. The report also pointed out that resolution process under the Insolvency and Bankruptcy Code (IBC) regime for five steel companies, which accounts for around 17% of the current domestic installed capacity, has seen participation not only from domestic metals players, but also from overseas steel majors and financial institutions. At present, top three domestic steel producers account for around 40% of India’s annual crude steel production, and given the initial readings in the resolution process thus far, the domestic steel industry is heading towards further consolidation in the near to medium term. “This augers well for the industry, given that these large capacities have been operating at sub-optimal utilisation levels thus far,” the ICRA report added.

from The Economic Times http://ift.tt/2GSUER9