Profit of Steel companies is expected to fall 5-6 percentage points on a sequential basis in September quarter with domestic hot-rolled-coil (HRC) prices falling 26 per cent so far in this fiscal.
Domestic steel companies face a bumpier road ahead as the external environment is becoming increasingly challenging in key global markets.
While further drop in domestic prices in this fiscal cannot be ruled out, the government’s large infrastructure spending pipeline and significant moderation in seaborne coking coal prices are expected to partly cushion the impact of steel price decline in the second half, said an ICRA study.
Slump in Chennai
The steel demand in China, which accounted for 52 per cent of the global steel demand, is treading on a downward slope, as the economy braces for the combined impact of the property bubble, strict zero Covid lockdown, and a severe ongoing heatwave, it added.
In addition, a combination of adverse factors like unprecedented inflation due to disruptions in energy/food supply chains following the Russia-Ukraine war, and steep policy rate hikes by Central Bankers to counter the same may stifle economic activities in the other key steel consumption hubs of US, European Union, Japan and South Korea, which add up to another 20 per cent of global steel demand.
Jayanta Roy, Senior Vice-President, ICRA said India is the only bright spot in the pack for now, with crude steel production growing at 8.9 per cent in April-July of the current fiscal. The Central and State governments’ combined capex spends is budgeted to increase by over 22 per cent in the current fiscal and this will push domestic steel demand by 7-8 per cent in this fiscal.
While domestic steel demand is strong, local spot HRC prices corrected by a steep 26 per cent in this fiscal so far, reaching ₹56,700 a tonne by August-end, levels last seen in March 2021. “We expect domestic steel prices to remain under pressure over the near term, since domestic steel prices cannot be insulated from the trends emerging in global steel markets,” he said.
Another negative surprise has been that export of semis, which has been kept outside the ambit of duties, has failed to pick-up so far, reinforcing the view of a subdued external demand environment. The FY23 net steel exports are therefore poised to decline by a much sharper 55 per cent over last fiscal.