Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  

| More

Domestic steel demand to grow at 7-8% in FY2024 supporting industry capacity utilisation at 80%: ICRA

Posted On: 2023-03-22 21:57:09 (Time Zone: IST)

According to ICRA's latest research note on the steel sector, domestic steel demand is expected clock a double-digit growth of around 11.3% in FY2023, following an 11.5% growth recorded in FY2022. Domestic steel consumption growth has remained strong throughout FY2023 supported by the Government's push for infrastructure-led economic growth. With the Central Government's capex outlay poised to increase by 37% year-on-year (YoY) in FY2024, ICRA has revised upwards its steel consumption growth estimate for FY2024 to 7-8% from 6-7%.

Commenting on the industry trend, Mr. Jayanta Roy, Senior Vice-President & Group Head, Corporate Sector Ratings, ICRA said, "FY2023 will witness two significant milestones for the steel sector. Firstly, the Central Government's current year capex is expected to touch the average annual run-rate envisaged in the National Infrastructure Pipeline for the very first time. Secondly, the sector will be witnessing two back-to-back years of double-digit steel consumption growth rates after a gap of more than a decade. The last time this rare feat was achieved was in FY2010/FY2011. While private sector investments have generally remained muted at present, the Government's capex drive has helped maintain the industry's capacity utilisation rate at an estimated 79% in FY2023. With steel consumption expected to grow in high-single digits next year, we expect the industry's capacity utilisation rate to improve to around 80% in FY2024, despite the commissioning of some new expansion projects."

International steel prices reached a nine-month high in the second week of March 2023 as easing of Chinese lockdown restrictions led to a pick-up in economic activity for the world's largest producing and consuming nation. Chinese HRC export offers have increased by ~15% in Q4 FY2023 so far, and domestic HRC prices have also mirrored the global trend, increasing by ~10% in the same period.

On the input cost side, reflecting the trend in domestic steel prices, landed cost of lump ore from NMDC's mines in Chhattisgarh is poised to sequentially increase by ~7% in Q4 FY2023 as export viability increases. Notwithstanding this increase, secondary steel players are likely to witness a significant relief on input costs as the landed cost of imported thermal coal prices sequentially soften by around 20% in Q4 FY2023. For blast furnace operators, the cost scenario would be different, as imported premium hard coking coal landed costs are expected to sequentially increase by around 7-8% in Q4 FY2023.

Therefore, while steel companies across the spectrum would record sequentially higher realisations in the fourth quarter, divergent trends in iron ore, thermal, and coking coal prices would have a mixed impact on earnings of various steel players, depending on their raw material mix. ICRA's analysis suggests that moderation in thermal coal prices can potentially lift the operating profits of secondary steel producers by around 10 percentage points sequentially in Q4 FY2023. However, fourth quarter earnings of blast furnace players would be largely driven by a sequential growth in despatches, as a rise in coking coal costs would limit the scope for further margin improvement.

The trends on the steel trade flows reveal that following the withdrawal of export duties in November 2022, monthly finished steel exports have doubled to around 0.6 million tonne (mt) in Q4 FY2023 from the November 2022 lows of 0.3 mt. Commenting on this trend, Mr. Roy added, "While this pick-up is encouraging to see, the near-term growth opportunities in the overseas markets look challenging as, barring possibly China, most of the other leading steel-consuming hubs are likely to witness anaemic growth in steel consumption in CY2023. Therefore, India's finished steel exports, after an estimated 51.5% steep decline in FY2023, are expected to witness only a modest growth of 3-4% YoY in FY2024 due to muted external demand". On the other hand, steel imports have risen throughout FY2023 as trade flows get diverted to high-growth markets, leading to India becoming a net finished steel importer for five months in a row between October 2022 and February 2023. Overall, finished steel imports in FY2023 are expected to increase by over 30% YoY, and thereafter by 5-6% YoY in FY2024.

Fresh steel capacities accumulating to ~35-40 million tonne per annum are lined up for commissioning by FY2026. Therefore, with the industry's earnings moderating, dependence on external financing to meet committed expansion plans is likely to increase going forward, early signs of which can be observed in the 22.5% increase in the steel industry's bank borrowings during the first 10 months of FY2023. Consequently, the industry's leverage (total debt to operating profits) is expected to deteriorate to an estimated 2.0-2.5 times in FY2023/ FY2024 from 1.1 times in FY2022. However, this is still lower than the industry's leverage level of 2.9 times recorded during the previous upcycle of FY2019. Therefore, in ICRA's opinion, steel companies today are more resilient to withstand any worsening of the macroeconomic environment next fiscal.

Click here to send ur comments or to

Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only., its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.

Other Headlines:

CRISIL Ratings: Domestic demand, softer cotton prices to sustain RMG growth

CRISIL Ratings: Higher workplace occupancy to light up cigarette volume 7-9%

CRISIL Ratings: Apparel retailers to grow 7-8% this fiscal via expansion, festival spur

CRISIL Ratings: For tea companies, ~8% revenue degrowth brewing this fiscal

CRISIL Ratings: Revenue of paper makers to crumple 8-10% this fiscal

ICRA expects banking sector to stay resilient, outlook remains Positive

CRISIL MI&A: Red-hot domestic demand to stave off steel price melt this fiscal

CRISIL Ratings: Replacement demand to drive tyre volume up 6-8% this fiscal

CRISIL Ratings: Home textiles makers to weave revenue, profitability rebound this fiscal

Capital outlay on roads, renewables seen rising ~35% in this and next fiscals to Rs ~13 lakh cr, backed by strong execution pace

Softening demand to moderate Indian IT services industry growth to 3-5% in FY2024: ICRA

CRISIL Ratings: Telcos may dial up Ebitda 15-17% to Rs 1.2 lakh crore this fiscal

CRISIL Ratings: Social welfare spend of states to hit a decadal high this fiscal

CRISIL Ratings: Footwear sector revenue to tread ~11% higher this fiscal

CRISIL Ratings: Robust demand to whip up dairy industry revenue 14-16%

Indian hospital industry's operating profit margin will remain healthy at over 22% in FY2024: ICRA

Weak overseas demand to snip 5-6% off jute revenue this fiscal - CRISIL

ICRA expects the telecom services industry to report moderate revenue growth of around 7-9% in FY2024 amid high capex spends

CRISIL - Viscose staple yarn makers set for 10-12% revenue growth this fiscal

Sugar mills seen unscathed despite pricier cane, lower exports - CRISIL

CRISIL Ratings: Specialty chemicals on domestic drive, revenue seen growing 6-7%

CRISIL Ratings: Higher ad spends to lift revenue 13-15% for print media this fiscal

Paytm: Top brokerages, such as ICICI Securities, Axis, Dolat lift Paytm's target price to Rs. 1250

CRISIL Ratings: Securitisation volume surges 60% to first-quarter peak

CRISIL Ratings: FMCG sector to witness 7-9% rise in revenue this fiscal

CRISIL MI&A and ATMA: Tyre industry on a roll, driving towards doubling in size

CRISIL Ratings: Slowing US, EU to chip 6-8% away from handicraft sales this fiscal

CRISIL MI&A: One out of five MSMEs to see stretch in working capital days

Yes Securities Identifies Rural India as Key Driver of Economic Recovery in Latest Report

CRISIL Ratings: Revenue of automotive component makers to grow 10-12% this fiscal

CRISIL: Residential real estate sales to grow 8-10% this fiscal

CRISIL MI&A: Cement prices to dip 1-3% this fiscal despite healthy demand

CRISIL Ratings: Aircraft MRO services revenue could leap 3x in 5 fiscals

Demand pressures to moderate revenue growth of Indian fashion retail entities to 10% in FY2024: ICRA

CRISIL Ratings: Revenue of organised gold jewellers to rise 16-18% this fiscal

CRISIL Ratings: Revenue of top 18 states to grow at 6-8% this fiscal

Automobile Sector - Monthly Quick View - May'23 - Steady YoY and MoM Growth on Low Base; UVs are Clear Winner...

CRISIL Ratings: New guidelines lend much-needed clarity to FLDG usage

MSP for kharif crops - Views of Pushan Sharma, Director - Research, CRISIL Market Intelligence and Analytics

PMI Services logs a record high, Employment scenario, however, remains a concern

Road construction to witness 16-21% jump in FY2024, ahead of General Elections: ICRA

Sustained demand momentum to drive double-digit revenue growth for the Indian hotel industry in FY2024: ICRA

HCL Technologies Ltd - Q4FY23 Result First Cut - A marginal miss on major parameters, though PAT beats expectations

Indian quick-service restaurant industry to witness strong growth in near to medium term with expected ramp-up in store additions: ICRA

HDFC Securities Institutional Research Desk: Report on Infosys - On the back foot

Infosys Ltd. Q4FY23 Result First Cut - A miss on all fronts

Healthy credit growth of NBFCs and HFCs led to highest post-pandemic quarterly securitisation volumes in Q4 FY23, estimated at ~Rs 61,000 crore: ICRA

Impact of Monsoon forecast on Markets - Reliance Securities

HDFC Securities Institutional Research Desk: Report on Kolte Patil Developers - Premiumisation to drive the next leg of growth

Operating margin of domestic base metal entities to remain range-bound at 19-20% in FY2024: ICRA

Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2020