India Ratings and Research has maintained a negative outlook on the steel sector for the next fiscal due to high indebtedness and pricing pressures in the industry.

The rating agency expects steel demand to grow marginally by 0.5 per cent, to 6.5 per cent in next fiscal with overall GDP growth of 7.9 per cent (7.4 per cent). Key infrastructural initiatives such as housing for all, development of 100 smart cities, and launch of National Infrastructure Investment Fund are likely to give a substantial boost to the construction sector.

Further, the government’s focus on ‘Make in India’ and ‘ease of doing business’ along with a fall in inflation and interest rates are expected to support manufacturing sector growth.

Ind-Ra does not expect any major recovery in domestic price levels next fiscal unless mechanisms to restrict cheaper imports are put in place. Global steel prices started declining from fourth quarter of FY’14, mainly due to global overcapacity and falling demand.

Though steel demand has tapered off in the entire world broadly, it is largely influenced by the slowdown in China, which controls nearly half the global steel production.

Despite many policy actions, steel imports into India were up 34 per cent in the first eight months of this fiscal. The price differential between imported and domestic products has forced Indian steelmakers to offer substantial discounts which as a consequence have severely impaired their profitability.

A surge in imports was one of the important reasons for the fall in domestic capacity utilisation to around 80 per cent in FY15, the lowest since FY10.

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