India’s domestic steel outlook firm amid concern of global steel demand contraction

The Indian steel sector outlook, on the back of strong domestic demand from government and private sectors, is likely to remain firm amid concern of global demand uncertainties in the current fiscal.

Tata Steel expects that demand and prices will remain strong as China will no longer be adding 50-60 million tonnes to its capacity annually and that country may not export significantly higher quantities to disrupt steel prices globally.

However, India Ratings and Research (Ind-Ra) has maintained a “neutral outlook” on the steel sector for FY23 in view of high raw material inflation that would result in elevated prices and moderation of volume and margin. Ind-Ra also expects that infrastructure spending by the government will support steady domestic consumption.

The world’s second-largest steel producer ArcelorMittal has projected a contraction in global steel demand.

The government has allocated Rs 111 trillion for the National Infrastructure Pipeline (NIP) to be spent over the next five years while for the private sector capital expenditure, housing and consumer durables end-user segment, the demand growth would remain muted due to elevated prices,” the rating agency said.

According to Ind-Ra research, steel players may find it challenging to pass on the cost inflation completely. Although this could moderate absolute EBITDA, it would remain higher than the pre-pandemic levels, it said.

“Lower Chinese production and exports, and an increase in quota limit for exports to European markets, due to the ongoing Ukraine-Russia war, Indian steel players are likely to benefit. As such, the margin in exports sales mix is likely to be higher in FY23, cushioning the profitability, Ind-Ra said.

In the March 2022 quarter, Tata Steel’s sales volume from European operations had decreased by 2.8 per cent on a YoY basis. But, net realizations on a sequential basis were higher by Euro53 per tonne as prices rose. ArcelorMittal, in its latest projection, said global steel consumption may contract by up to one per cent due to geopolitical disruptions and supply chain issues, stoking inflation, China’s Covid-19 lockdowns dampening economic activity.

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