Steel demand growth in India is unlikely to show rapid improvement in the short term, with any growth being gradual, India-focused ratings agency Icra said.
Steel consumption grew at 0.5pc on-year in the April-October period, Icra said, in line with the growth of 0.6pc in the 2013-14 fiscal year that ended 31 March.
Demand recovery in the capital goods and construction sector remains fragile, although automobile production is likely to make a smart recovery during 2014-15. Growth in steel output has also slowed to 2.2pc on-year in April-October, compared with a 4pc output growth in 2013-14, the agency said. India is likely to end 2014-15 as a net importer of steel because of the inflow of cheaper Chinese steel products.
But the top seven Indian steelmakers continue to have a healthy operating profit margin of 21.04pc, Icra said, largely because of cheaper prices of imported coking coal. India imports most of its coking coal needs, with the agency forecasting the average imported coking coal cost to Indian steelmakers to fall 15pc on-year in 2014-15.
But iron ore prices in India continue to remain firm, despite a nearly 50pc fall in global prices in 2014, as mining disruptions and restrictions in almost every major producing state has limited supply availability. While larger steel mills are meeting some of the shortfall through imports, smaller companies are unable to afford imports and are operating at lower capacities, Icra said.
Lower coking coal prices and a gradual demand recovery will offset firm iron ore prices and help Indian steelmakers stay profitable in 2014-15, it added.
Source:argusmedia.com
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