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Domestic steel demand growth turns negative: Icra

Between April–November 2019, India remained a marginal net steel exporter.

, ET Bureau|
Dec 10, 2019, 03.53 PM IST
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Operating environment for alloy steel makers has been especially challenging, given the auto sector slowdown, and contraction in engineering exports in current fiscal.
Growth in domestic steel demand slipped into negative territory in the first two months of the third quarter of FY20 (October and November), recording a marginal de-growth of 1.8 per cent year on year (YoY), ratings agency ICRA has said in its latest sector report.

In line with the trends in GDP growth, domestic steel demand has steadily declined in the current fiscal from 6.9 per cent YoY in Q1 FY20 to 3.1 per cent YoY in Q2 FY20, being substantially lower than the consumption growth of 7.5 per cent recorded in FY19.

However, despite weak demand environment, domestic steel mills have announced moderate price hikes in November and December 2019, largely taking cues from rising international steel prices seen from early November 2019. ICRA said, domestic steel prices are likely to remain highly sensitive to international steel prices in the absence of any meaningful pick-up in domestic demand in the seasonally strong fourth quarter.

Commenting on it Jayanta Roy, senior vice-president ICRA said: “Domestic steel consumption growth is likely to be less than 5 per cent in the current fiscal, compared with 5-6 per cent range that we had guided in August 2019."

Operating environment for alloy steel makers has been especially challenging, given the auto sector slowdown, and contraction in engineering exports in current fiscal. For carbon steel makers too, the expected pick-up in construction demand post monsoon has not really played out thus far, Roy added.

Between April–November 2019, India remained a marginal net steel exporter. During this period, steel exports grew by 33.3 per cent YoY and imports contracted by 5.3 per cent YoY.

Coming to industry financials, ICRA’s analysis suggests that following continued correction in steel prices and relatively firm raw material costs, the operating margins of the steel industry dropped to 15.4 per cent in Q2 FY20 from 18.2 per cent in Q1FY20 and 22.1 per cent in Q2 FY19.

However, on the positive side, the cost of steel production for domestic blast furnace operators is expected to show a sequential decline of around US$50/tonne in Q3FY20, led by a fall in coking coal as well as domestic iron ore prices. Spot price of premium hard coking coal, which represents 40-45 per cent of the steelmaking cost for blast furnace operators, has declined sharply in the current fiscal, with prices in FY20 thus far averaging at around US$ 178/tonne (fob Australia basis) against US$ 202/tonne in FY19.

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