Ratings agency ICRA on Wednesday said the country's steel consumption growth is likely to decelerate to six per cent in the current financial year, impacted by economic slowdown.
The growth of domestic steel consumption was recorded at 7.9 per cent in the previous financial year, the rating agency said in a report.
However, the profitability of steelmakers may recover somewhat in the third quarter of 2019-20, with a sharp fall in prices of coking coal, key steel-making ingredient, in August 2019, and expectation of better demand from the construction sector during that quarter, it said.
"The domestic steel consumption growth is expected to decelerate to around 5 per cent-6 per cent in FY2020 as compared to 7.9 per cent in FY2019, on the back of an unprecedented slowdown in economic activity, as reflected by GDP (gross domestic product) growth tapering down to 5 per cent in Q1 FY2020," ICRA said in the report.
Consequently, the report said the margin outlook for steelmakers has weakened in the second quarter due to a sharp fall in steel prices and firm raw material costs, though some recovery is expected in the third quarter of 2019-20.
According to ICRA, demand is expected to improve somewhat in the second half of 2019-20 following a likely pick-up in infrastructure spending.
Jayanta Roy, senior vice-president and group head (corporate ratings), ICRA, said, "Industry operating environment remains challenging in FY2020. Our analysis of prevailing trends of 22 companies comprising 60 per cent of industry size indicates that reduced demand and steel prices amidst firm raw material costs have restricted the revenues and operating margins of the industry in Q1 FY20."