Steel companies may face the daunting task of navigating through prolonged period of moderate steel prices and weak demand amid higher input cost and challenging export market in the coming fiscal.

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Bucking the trend of the previous few years, domestic steel consumption growth is expected to slow down to about 8 per cent in FY’25 against an estimated growth of 13 per cent in FY’24, according to the rating agency ICRA.

Jayanta Roy, Senior Vice-President, ICRA, said led by the government’s accelerated infrastructure spending ahead of the Lok Sabha elections, domestic steel demand grew at a brisk pace of about 16 per cent between last June and November.

However, the demand slowed down significantly in December and January to 6.5 per cent. Though these are early trends, it hints that the demand will remain soft over the next two quarters as the government spending moderates around the election period, he added.

On the export front steel companies remain on tenterhooks with multiple structural headwinds in the Chinese economy leading to its steel exports reaching a seven-year high of 90 million tonne (mt) in 2023 (65 mt in CY2022).

With most other large steel-consuming hubs globally facing subpar economic activities in the near term, global steel trade flows have been increasingly redirected to high-growth markets like India.

This led to India’s finished steel imports steadily trending up since last October, most notably from China and Vietnam, and domestic steel prices parallelly correcting by 8-10 per cent in H2 FY’24. India is poised to become a net finished steel importer in the current fiscal after a gap of five years.

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Volatility in the seaborne coking coal market has been exceptionally high post-Covid. For a third year in a row, coking coal prices remain elevated with spot price of premium Australian cargoes likely to average closer to $290 a tonne in FY24. Higher coking coal consumption costs, along with a 25-30 per cent increase in domestic iron ore prices last August is expected to nibble at the industry’s profitability in H2 FY24, pushing second half earnings of steel mills markedly lower than the first half of the current fiscal.