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India Ratings revises steel sector outlook to negative from stable

This is due to the modest steel demand growth expectations and margin pressure.

, ET Bureau|
Last Updated: Feb 27, 2020, 02.02 PM IST
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India Ratings and Research expects cost pressures to build up majorly for non-integrated and new captive steel producers due to strong competition among bidders and final premiums in the recently auctioned mines.
India Ratings and Research has revised its outlook on the steel sector to negative for FY21 from stable-to-negative, given the modest steel demand growth expectations of 5 per cent and margin pressures led by iron ore price risks.

The agency said high iron ore premiums for new mine owners, both captive and merchant miners, could shift the cost positions of steel mills.

The slowing economic activity as reflected in India Ratings and Research’s GDP estimates of 5 per cent and 5.5 per cent for FY20 and FY21, respectively, would continue to affect demand growth in the steel sector and any significant pick-up is unlikely.

India Ratings and Research expects cost pressures to build up majorly for non-integrated and new captive steel producers due to strong competition among bidders and final premiums in the recently auctioned mines.

The agency said it expects the overall steel margins to remain modest in FY21, with slight improvements after the industry witnessed EBITDA margins dropping around 35 per cent yoy in nine month period of FY20. However, it expects the margins to bottom out in Q4FY20. The agency believes in case the steel demand does not strengthen up by H2FY21, new capacity additions along with ramp up of stressed assets could put further pressure on prices and plant capacity utilisation rates.

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