Falling spreads on earnings before interest taxes depreciation and amortization (Ebitda) will weigh on steel sector CAPEX, the report said, adding that the industry is yet to see a recovery in prices despite a run-up in raw material costs.
"Global steel prices dropped 13 percent in the first eight months of 2019 due to weak demand, unseasonal jump in global inventory levels of up to nearly 35 percent through August and trade tensions," the report said. This was despite a whopping 56 percent runup in global iron ore prices during the same period.
"Steel prices in India mirrored the trend, falling 10 percent from ₹42,000 per ton in January to ₹38,000 per ton in August 2019," the report added.
Not surprisingly, Indian steel manufacturers’ earnings before interest, tax, depreciation, and amortization (Ebitda) spreads contracted 420 basis points (bps) on-year in the first quarter of fiscal 2020. The contraction was more for large nonintegrated players, at 470 bps.
To add to it, "subdued domestic demand and weak export markets cloud the industry’s prospects in the rest of this fiscal as well," the Crisil report said. After a robust 7.5-8 per cent growth in the previous two fiscals, the domestic steel industry is expected to witness a mid-cycle slowdown at 4-5 per cent this fiscal, given muted construction investments and weak automotive market, the report predicted.
CRISIL Research said: “Steel prices have not been able to recover despite a cost-push. We, therefore, believe weak realizations will shear 350-370 bps off the sector’s Ebitda margins for the first half and 200-250 bps for the fiscal as a whole, reversing a three-year climb."
"Large non-integrated players will see their margins shrink more, by 300-350 bps this fiscal, given weak flat steel market and a 3-5 per cent rise in iron ore prices amidst weak realizations.”
この記事は Steel Insights の October 2019 版に掲載されています。
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この記事は Steel Insights の October 2019 版に掲載されています。
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