Steel prices in India are expected to remain under pressure in the current fiscal, but the demand is expected to pick up with an uptick in commercial vehicle sales, ratings agency Moody’s said.
Sounding upbeat on the performance of two major players in the domestic market — Tata Steel and JSW Steel — in 2015-16, it said that the worst phase for the two is over. “We do not foresee steel imports coming down anytime soon and so there may be pressure on the prices in 2015-16 fiscal, but the worse for Tata Steel and JSW Steel is over,” Moody’s Senior Analyst Kaustubh Chaubal told PTI .
Subdued domestic demand and rise in imports from China, Russia and Korea had exerted pressure on steel realisations in the last fiscal, he added.
However, Moody’s expects steel demand to pick up in 2015-16 on the back of an uptick in commercial vehicles sales, particularly the medium and heavy commercial vehicles (M&HCV).
“We expect the uptick in activity in the M&HCV segment to continue and if you look at the light commercial vehicles’ space, the de-growth is now coming down, which is also a good sign. LCV market may turn in the second half of this fiscal. These aspects will help steel demand,” Chaubal said.
Besides, declining prices of iron ore and cooking coal as well as the government’s decision to resume mining will aid in reducing pressure on the companies, Moody’s said. “While we expect steel prices to remain under pressure, we believe that the cut in domestic iron ore and coking coal prices will aid in easing pressure on margins. NMDC, for instance, revised its iron ore prices downwards by Rs 500 per tonne in April 2015.
“Furthermore, restarting of iron ore mining activities in Karnataka and Odisha will also help in a correction to iron ore prices,” it noted.
According to data by Joint Plant Committee (JPC), under the Steel Ministry, India imported 9.321 million tonnes (MT) of steel in April-March 2014-15, an increase of 71 per cent over 2013-14, making it a net importer for the last fiscal.
On the outlook for Tata Steel and JSW Steel, he said, “FY 2014-15 results for both firms were impacted by high iron ore costs. Correction in iron ore prices will benefit JSW Steel, and the resumption of captive mining activities is expected to benefit Tata Steel in FY 2015-16.”
During April-March 2014-15, crude steel production grew by almost 8 per cent to 88.124 MT year-on-year. The six ISP producers, which includes Tata Steel and JSW Steel, together produced 45.31 MT in 2014-15, growing 2.4 per cent compared to 2013-14, JPC data showed.
Tata Steel’s total deliveries in 2014-15 fiscal stood at 26.32 MT, whiles sales of JSW Steel stood at 12.03 MT during the same period.
On steel price realisation, Moody’s said that both companies have been performing better than the market average.