 "Fitch sees India steel consumption improving 7-8% in 2015")
India's 2016 steel consumption is seen improving modestly by 7-8 percent as increased spending by the government on infrastructure is expected to be the catalyst for any meaningful improvement in domestic steel demand, Fitch Ratings said today in its report today. Fitch has a negative rating outlook on the sector.
High imports and soft steel prices globally in 2016 are likely to result in continuing profitability pressures for Indian steel producers with their margins likely to go lower this year, and improve marginally in 2016. Improving domestic demand and the imposition of safeguard duty on imports on certain steel products for 200 days are being seen as the catalysts for the optimism.
Fitch expects the leverage of major Indian steel producers to remain high in 2016, and start to decrease meaningfully only by 2017. The debt levels of major Indian steel producers increased over the last three years due to capacity expansions. The high debt, along with profitability pressure, is likely to result in deterioration of leverage in 2015, it said.
The domestic steel industry is likely to experience overcapacity in the next two years with about 15 million tonne of capacity expected to come onstream between second half of 2015 and 2016. Steel production in India has remained stagnant during April-September FY16 despite growth in consumption due to a rise in imports and falling exports.
Overcapacity will still be a concern over the next two year as demand growth remains modest and imports stays high. The low utilisation levels of new capacities - generally in the first six to 12 months - and delays, if any, in project completion would soften the impact during 2016, said Fitch in its report.