Indian steel player profitability

Demand slowdown overcapacity loom large on Indian steel player profitability

The Hindu reported that as end user demand for steel in India continues to fall, CRISIL Research estimates domestic steel demand to grow at a subdued rate of 2 to 4% in 2013 to 14.

Due to execution delays owing to environment clearances, many construction and infrastructure projects have not taken off as expected.

Slowing economic growth has also put the brakes on consumption-driven sectors such as automobiles and consumer durables.

While near-term demand is expected to remain muted, long-term prospects are forecast to be steady.

CRISIL Research expects steel demand in India to pick up from 2014-15 with an expected pick-up in demand in key end user sectors such as construction, infrastructure and automobiles.

However, growth in demand will be lower compared with the robust growth rate of the last decade.

CRISIL Research estimates domestic steel demand growth at 6 to 7% CAGR between 2013 to 14 and 2017 to 18 compared with around 9% CAGR over the last decade.

This rate of increase will see steel demand in India touching 93 to 94 million tonnes by 2017 to 18.

Since incremental demand for finished steel is expected to be considerably lower the demand-supply gap will widen, when majority of the planned capacities are scheduled to be commissioned.

The widening gap will encourage, even compel, steel manufacturers to increase exports to arrest the expected fall in operating rates.

However, the demand-supply equation globally too is not favouring domestic steel manufacturers.

A shift in China’s focus from investment to consumption, accentuated by weak economic conditions in mature developed countries will force a deep structural slowdown in global steel demand over the next 5 years.

(www.steelguru.com)

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