Steel companies profit set to fall sharply in the September quarter with steel prices dipping 10 per cent from Rs 42,000 per tonne in January to Rs 38,000 in August in line with the international trend.

Global steel prices dropped 13 per cent in the first eight months of 2019 due to weak demand, 35 per cent jump in global inventory in August and trade tensions. This was despite a whopping 56 per cent run-up in global iron ore prices during the same period.

Steel companies earnings before interest, tax, depreciation and amortisation (EBITDA) spreads contracted 420 basis points year-on-year in the first quarter of fiscal 2020. The contraction was 470 bps for large non-integrated players.

Subdued domestic demand and weak export markets are expected to cloud the industry’s prospects in the rest of this fiscal as well. After a robust 7.5-8 per cent growth in the last two fiscal years, the domestic steel industry is expected to witness a slowdown at 4-5 per cent this fiscal, given muted construction investments and weak automotive market, said Crisil report.

It expects some improvement in global market sentiment and domestic demand growth in the second half. However, a weak first half will still see to a 5-6 per cent contraction in realisations this fiscal.

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