Steel demand may improve further in near-term: ICRA

Backed by healthy consumption growth rates of 6 per cent in the month of October 2017, domestic steel demand growth was marginally higher at 4.5 per cent in seven months of the current fiscal, compared to 4.4 per cent in four months of the fiscal, rating agency ICRA said in a report.

Domestic steel production growth, however eased to 5.1 per cent in seven months of the financial year from 6.9 per cent in the first four months, on the back of a moderation in export volumes and increased steel imports during the same period, ICRA added.

"Given the seasonally stronger demand in first half of the fiscal, and the government's push on infrastructure spending, the domestic steel demand growth is expected to improve further in the near-term.

The production growth too is expected to revive on the back of a likely pickup in domestic demand and favourable international steel prices, enabling an export push," ICRA, senior vice president Jayanta Roy said.

In the international market, lead indicators of Chinese steel demand including growth in investment in real estate and sale of commercial buildings have witnessed a moderation in recent months.

Continued trade protection policies in various countries are likely to keep Chinese export volumes low in the near-term at least.

Additionally, Chinese government's stringent pollution control norms in winter months, which include curbing steel production by as high as 50 per cent in some regions during the period November 2017 to March 2018, are likely to result in a decline in steel production growth in China in the October-December quarter, and the January-March quarter.

ICRA expects seaborne iron ore prices to remain weak in the second half of the fiscal, largely dragged down by scheduled Chinese steel production cuts during the winter months, as well as a piling up of iron ore inventories at Chinese ports. Taking a cue from the weakness in international prices, NMDC has reduced the price of iron ore fines and lumps in India by Rs 100/MT in October 2017.

ICRA said that the operating profitability of the steel industry improved to 16 per cent in the second quarter, from 12.5 per cent in the previous quarter because of reduced coking coal costs and higher steel prices. Despite cost pressures, margins are expected to remain sequentially similar in the third quarter because of a likely pick-up in demand.