India becomes a net exporter of steel amidst weak domestic demand, says ICRA

New Delhi [India], Mar 28 : Given the continuing sluggishness in the key real estate and construction sectors, ICRA expects the overall steel consumption growth for FY2017 to be lower than the previous year levels.

Sluggish demand in recent months led to a reduction of Rs. 2,000/MT in domestic hot rolled coil (HRC) prices in February 2017. Though domestic HRC prices have seen an upward revision by Rs. 1,000/MT in March 2017, and reportedly the industry is considering a further price increase in April, the sustainability of this increase remains uncertain, given that domestic prices are now costlier than landed cost of imports, says ICRA in the report.

Nevertheless, the Government's thrust on infrastructure and affordable housing sectors in the Union Budget 2017-18 points to a favorable demand outlook for the steel sector in the medium term.

India's steel imports contracted by 38.5 percent in 11M FY2017 on the back of various trade protection measures including anti-dumping duty, safeguard duty and minimum import price.

"This decline in steel imports has coincided with a strong growth in steel exports by domestic mills, supported by an improvement in the pricing scenario in international markets.

As against a wide gap of 7.6 mt in FY2016 between India's steel imports and exports, exports have surpassed imports in 11M FY2017 by a thin margin and as a result, India has now become a net exporter of steel in the current year," said senior vice-president and group head - corporate ratings ICRA, Jayanta Roy.

Operating margins of the steel industry improved to 16.3 percent in Q3 FY2017 from 13.4 percent in Q2 FY2017 on the back of increased realizations post the imposition of anti-dumping duties.

Coverage indicators too have followed a similar trend sequentially, with industry interest coverage increasing from 1.16 time in Q2 FY2017 to 1.51 time in Q3 FY2017.

In the current quarter, however, profit margins of steel producers are likely to remain under pressure, as most of the high cost coking coal inventory would be consumed in this quarter.

Apart from blast furnace operators, which form about 45 percent of the total installed capacity, secondary steel players would also be adversely impacted by the increased input costs of sponge iron and scrap.

This, coupled with weak demand conditions, would weigh on the operating margins of the industry in Q4 FY2017.

India's steel consumption growth remained weak at 3.4 percent in 11M FY2017 due to continued weakness in the key end-user industries.

Typically, domestic steel consumption picks up sequentially in the third quarter after the retreat of monsoon and consequent pick up in construction activity.

However, with the demonetization of high value currencies in November 2016, the consumption growth in Q3 FY2017 dropped by 2.4 percent QoQ.

Source: ANI