Steel demand is likely to recover
in the second half the current financial year on the back of an expected boost to the infrastructure sector, according to an Icra report.
Icra noted that a softening demand and a 34 per cent dip in steel exports kept the domestic crude steel production growth low at 3.3 per cent in 2018-19.
"Domestic steel consumption growth eased to 7.5 per cent in 2018-19 from 7.9 per cent in the preceding fiscal due to liquidity and fuel price related headwinds faced by the auto sector during the second half," the report said.
Steel imports grew 4.7 per cent in 2018-19 and this year imports are expected to go down in the coming months as the domestic hot-rolled coil prices are
trading at a 6 per cent discount to imported offers, it observed.
Despite expectations of reduced imports, domestic steel production growth is likely to remain modest in second quarter of 2019-20 due to the seasonal weakness in demand, and would recover in second half of the fiscal mirroring steel consumption trends, it said.
"While there is a scope for an immediate price hike due to current disparity between domestic and imported steel prices, we expect any meaningful price improvement would happen only in second half of FY20, when infrastructure spending is likely to gain momentum and the auto sector is expected to do well on the back of pre-buying ahead of the BS-VI rollout," Icra Senior VP and Group Head Corporate Sector Ratings Jayanta Roy said.
International steel prices would also remain a strong determinant of domestic prices, Roy said.
"The demand growth moderated further to 6.4 per cent in April 2019 and is likely to remain lower than the FY19 levels in first quarter (of FY20) due to continued weakness in the auto sector and reduced construction related activities during the general election period," the report said.
This, coupled with elevated coking coal prices, is likely to affect the financial performance of domestic steel makers in first quarter, it added.
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