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Cheaper steel imports in weak demand conditions pose a challenge to Indian manufacturers |
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KOLKATA: A surge in cheap imports to continue to exert pressures on domestic steel prices, especially since the near term outlook on steel demand growth in the country remains muted. Whereas steel exports shrank by 8.1% in 2014-15, imports surged by almost 71% due to a sharper fall in international steel prices than domestic prices, leading to a widening gap between price levels.
On the demand side, domestic steel consumption growth improved to 3.1% in FY15 from 0.6% in FY14. With the construction sector, which accounts for about 60% of the total steel demand in India yet to witness much on-the-ground recovery, automobile sector is expected to be the growth engine for domestic steel demand in the near term, ICRA said in a recent report.
Operating margins of domestic steel industry (sample: seven large Indian companies in the steel sector, together accounting for over 40% of the total domestic capacity) witnessed a further decline in Q3FY15 due to moderate capacity utilisation levels and a fall in sales realisations. Profitability of Indian steel companies is expected to remain under pressure despite fall in raw material prices in the near term due to a significant fall in domestic and global steel prices.
International prices of iron ore touched a multi-year low in the beginning of April 2015. Consequently, on a year-on-year basis, average spot iron ore prices in April 2015 have corrected by a steep 55%.
"There has been some recovery in ore prices towards April end but the possibility of a sustained recovery looks unlikely at the moment. Iron ore demand will be adversely impacted by the weakness in Chinese demand, while the global sea-borne iron ore market will witness a supply glut because of significant upcoming low cost capacities from Australia and Brazil," Jayanta Roy, senior vice-president and co-head, corporate sector ratings, ICRA said.
With the enactment of the 'The Mines And Minerals (Development And Regulation) Amendment Act, 2015' ( MMDR Act, 2015), mining leases which had expired after their first renewal stand automatically extended till March 31, 2020 (for merchant miners), and till March 31, 2030 (for captive miners). This will help increase the output from Odisha and Jharkhand, where a number of mines remained closed in FY15 following the expiry of their first renewal period. Additionally, mining is expected to resume in Goa in the current financial year after a gap of 2 years. "Given these developments, we expect domestic iron ore production to increase by 20-25% in FY16" states Mr. Roy.
Source : economictimes.indiatimes.com
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