Domestic steel market may witness weak and violatile prices if there is no extension to minimum import price curbs, imposed on various steel products to check below cost imports, after August 2016, Moody's Investor Service said today.
Over the past year, Indian government has taken several measures to protect domestic steel producers including raising duties on steel imports from non-FTA countries, safeguard duty on certain grades until March 2018, the ratings agency said in a statement.
It also includes minimum import price (MIP) for some 173 grades of steel imported into the country. The MIP in its current form will remain in place until early August 2016, it added.
"Absent an extension of the MIP beyond this date or a similar alternate protectionist measure, domestic steel prices will remain weak and volatile and will reflect the global steel oversupply amid slowing steel consumption in China," Moody's said.
It further said that protectionist measures by the Indian government in the form of import duty hikes, safeguard duties or MIP will help the domestic steel industry.
"However, uncertainty remains as to whether the MIP will be extended beyond August 2016 or replaced with similar duties," Moody's added.
Moody's said it believes that slowing demand in China - the world's biggest consumer and producer of steel products - will continue to prompt Chinese steel makers to look overseas to sell excess supplies and pressure steel prices globally.
Analysing the performance of Sajjan Jindal-led JSW Steel, the global ratings agency said it expects the firm's earnings to improve "significantly" in 2016-17.
Moody's based its observation on a 24 per cent rise in saleable steel volumes to 15 million tonnes (MT) from 12.13 MT in 2015-16, product mix enrichment with a higher composition of long products, value added and special products.
"Our expectation that protectionist measures by the Indian government will continue to support steel prices and the company's ongoing cost-saving measures," it added.
In fiscal 2015-16 JSW Steel revised its sales strategy to focus largely on the Indian market. Looking ahead, in light of the weak global steel prices the company will retain its domestic focus.
"In our assessment, such a strategy augurs well for JSW Steel - because India is the only bright spot in the region, where we expect year-on-year demand to increase by a mid-to high-single-digit percentage," Moody's said.
It, however said that JSW's liquidity position remains weak with cash and cash equivalents of Rs 1,002 crore at March 2016 against around Rs 6,670 crore of short term debt and maturities over the next 12 months.
"While the firm has access to undrawn short-term lines of some Rs 5,000 crore, these facilities are subject to renewal each year. Its good track record of access to bank funding helps to offset some liquidity risk," it added.
