Rating Agencies Predict Bearish Steel Trends

Weaker demand and possible disruptions to iron ore supplies is likely to turn the current fiscal a challenging year for the country’s steel industry, Indian ratings has said.

The fundamentals of the steel sector are likely to weaken in the current 2019-20 fiscal year ending March 31, with the risk of softening of prices, elevated raw material prices and weak demand, India Ratings and Research said.

The rating agency has revised its outlook on the steel sector to ‘stable-to-negative’ from ‘stable’ for the remainder of FY20 given sluggish steel demand growth expectations owing to mix of structural and cyclical concerns in end-user sectors, primarily auto and real estate construction.

“The outlook also factors in increased import risks especially from Free Trade Agreement (FTA) countries such as Japan and South Korea due to adverse domino impact of the slowing global growth and continuing trade frictions. Furthermore, raw material availability and price risks may escalate in 4QFY20 if the uncertainty over iron ore mine auctions prolongs,” India Ratings has said.

India’s total steel demand growth rose at a slower pace of 5.7 percent to 33.3 million tons in April-July compared with growth of 9.2 percent in April-July 2018.

A slowdown in automotive industry and a marginal growth in the consumer durables segment affected steel demand, Care said. Reduced construction activity is also expected to reduce steel consumption.

These factors combined to reduce finished steel production growth to 1.4 percent to 18.1 million tons in April-May from a year earlier. Crude steel production increased by 2.7 percent to 36.9 million tons in April-July compared with a 10.6 percent increase a year earlier.

Care also reduced its 2019-20 fiscal year steel production growth forecast to 3-4 percent from an earlier 6-8 percent. India’s total steel output during April-July increased by 2.7 percent to 36.85 million tons from a year earlier.