‘Steel sec­tor prof­itabil­ity may im­prove in near term’

Resource Digest - - CONTENT -

With ris­ing global steel prices, the prof­itabil­ity of do­mes­tic steel in­dus­try is likely to im­prove in the near term. Due to a healthy trend in the in­ter­na­tional mar­ket, do­mes­tic steel prices have regis­tered a growth of 14 per cent dur­ing the last three months fol­low­ing to a sharp re­cov­ery in in­ter­na­tional steel prices and im­prove­ment in lo­cal de­mand growth.

Ac­cord­ing to a re­port by rat­ing agency ICRA, buoy­ant global steel prices have ben­e­fited In­dian mills to in­creas­ingly tap over­seas mar­kets, as re­flected in a 57 per cent Y-O-Y growth in ex­ports dur­ing Apr-aug 2017, help­ing the do­mes­tic steel in­dus­try op­er­ate at a ca­pac­ity util­i­sa­tion of above 80 per cent in the cur­rent fis­cal. "This is ex­pected to im­prove the prof­itabil­ity of do­mes­tic steel mills in the near term," said the re­port.

Steel prices have re­ported a healthy growth of 14 per cent since June 2017, aided not only by a sharp re­cov­ery in in­ter­na­tional steel prices but also by an im­prove­ment in do­mes­tic de­mand growth to 4.4 per cent in Apr-aug 2017, from 2.6 per cent per cent in FY17, ICRA said.

"The sharp rise in do­mes­tic steel prices has been fu­elled by ris­ing in­ter­na­tional prices. The Chi­nese hot rolled coil (HRC) ex­port prices in­creased by about 40 per cent since mid-may 2017, reach­ing $588 per met­ric tonne (MT) in the third week of Septem­ber 2017, sup­ported by China's re­silient do­mes­tic de­mand and its sup­ply-side re­forms to check the do­mes­tic steel over­ca­pac­ity," said ICRA Se­nior Vice-pres­i­dent Jayanta Roy. He added that Chi­nese steel pro­duc­tion grew at a healthy rate of 5.1 per cent in Jan-jul 2017 and kept the global steel ca­pac­ity util­i­sa­tion rates above 72 per cent in the last five months against 68.2 per cent in De­cem­ber 2016.

Op­er­at­ing mar­gins of the steel in­dus­try con­tracted to 12.5 per cent in Q1FY2018 from 15.7 per cent in Q4 FY2017 on the back of lower steel prices and in­creased raw ma­te­rial costs, es­pe­cially for cok­ing coal in Q1 FY2018.

While the prices of cok­ing coal and iron ore have also in­creased re­cently, the ex­tent of in­crease in do­mes­tic steel prices in Q2FY2018 re­mains higher than that in raw ma­te­rial costs, which points to a se­quen­tial ex­pan­sion in gross con­tri­bu­tion lev­els of steel play­ers.

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