Steel demand picks up to 5.2% in first 9 months of FY18, says ICRA

The improvement is seen due to sustained buoyancy in the automobile sector and recovery in growth rates in the construction and capital goods sectors

Helped by buoyant automobile sector and growth recovery in construction and capital goods, domestic steel demand has grown to 5.2 per cent for nine months ended December of 2017-18, says a report.

According to ICRA, the growth in steel demand was led by a healthy growth rate of 6.2 per cent in December 2017 and the rating agency expects the domestic consumption growth to remain favourable going forward on the back of government's thrust on infrastructure, particularly towards affordable housing, power transmission and the railways.

"Domestic steel demand growth has improved to 5.2 per cent in the first nine months 2017-18 as against 4.5 per cent in the first seven months of the current fiscal, aided by a healthy growth rate of 6.2 per cent reported in the month of December 2017," the report said.
 

"This improvement was supported by sustained buoyancy in the automobile sector and recovery in growth rates in the construction and capital goods sectors," it added.

Further, it noted that a combination of favourable domestic demand, remunerative prices in both international and domestic markets, and lower growth in imports are likely to support domestic steel production growth in the near-term.

At the same time, ICRA senior vice-president Jayanta Roy said with the lifting of winter production curbs in China post March 2018, "international steel prices are likely to correct somewhat, and would in turn exert pressure on domestic steel prices in the first quarter of next fiscal".

Meanwhile, the report observed that the resolution process under the Insolvency and Bankruptcy Code (IBC) regime for five steel companies, which accounts for around 17 per cent of the current domestic installed capacity, would help the steel industry.

"At present, top three domestic steel producers account for around 40 per cent of India's annual crude steel production, and given the initial readings in the resolution process thus far, the domestic steel industry is heading towards further consolidation in the near to medium-term," the report said.

"This augers well for the industry, given that these large capacities have been operating at sub-optimal utilisation levels thus far," it added.

Reportedly, Tata Steel and JSW Steel have emerged as the highest bidders for acquiring the assets of Bhushan Steel, Bhushan Power & Steel as well as Monnet Ispat & Energy, cumulatively representing around 45 per cent of the steel capacity currently undergoing resolution, ICRA said.