According to the ICRA report, released on Tuesday, growth in domestic steel demand slipped into negative territory with demand falling by 1.8 per cent to 15.4 million tones as against 15.7 mt year on year (YoY) for the first two months of Q3 FY20.
In fact, steel demand has declined in line with the GDP growth trend this fiscal, with growth falling from 6.9 per cent in the June quarter, to 3.1 per cent in the September quarter.
Notwithstanding the weak demand, domestic steel firms have hiked steel prices in November and December following a rise in international rates. Prices of domestic hot rolled coil steel prices rose by about 3% as well as the prices of bars have also been hiked.
As a consequence, to maintain healthy capacity utilization rates, flat steel producers have been tapping the global steel markets to beat the domestic slowdown, at the time when the steel prices are largely aligned with international steel prices.
According to the agency, domestic steel prices are likely to remain sensitive to international steel prices in the absence of a meaningful pick-up in domestic demand in the seasonally strong fourth quarter. ICRA’s channel checks suggest that off-takes from mills have been lacklustre in the first week of December as well. Expected traction from government projects has not been as strong either.
Jayanta Roy, Senior Vice-President, ICRA, said, given the continuing macroeconomic headwinds, domestic steel consumption is likely to be less than 5 per cent in the current fiscal, against 5-6 per cent guided in August,2019.
Steel companies are struggling due to auto sector slowdown and the contraction in engineering exports in the current fiscal. For carbon steel makers, too, the expected pick-up in construction demand post monsoon has not played out so far, he said.
Due to the correction in steel prices and firm raw material costs, the operating margins of the steel industry dropped to 15.4 per cent in Q2FY20 from 18.2 per cent in Q1FY20 and 22.1 per cent in Q2FY19.
Between April and November, India remained a marginal net steel exporter. with exports growing by 33.3 per cent, while imports contracted by 5.3 per cent. Domestic hot rolled coil prices have been trading at a discount of about three per cent or $16 a tonne to the landed cost of imports from FTA countries in the first week of December.
Meanwhile, Chinese hot-rolled coil offers have increased by around $30 per metric tonne since November, giving domestic steel companies the scope to increase prices by Rs 1,500 per tonne.
