Because of the continued weakness in the key end-user industries, India’s steel consumption growth remained weak at 3.4 percent during 11M FY2017. Typically, domestic steel consumption picks up sequentially in the third quarter after the retreat of monsoon and consequent pick up in construction activity. However, with the demonetization of high value currencies in November 2016, the consumption of steel in Q3 FY2017 dropped by 2.4 percent quarter-on-quarter basis.
Here it may be recalled that during 2014 through 2015, India was the third largest producer of raw steel and the largest producer of sponge iron in the world. The industry produced 91.46 million tons of total finished steel and 9.7 million tons of pig iron. India world's third largest Steel Producer was also ninth biggest steel importer in 2015 followed by China.
See our article: India third largest Steel Producer, also among top ten Steel Importers in 2015
However, amidst the weak domestic demand many experts feel that Indian steel exports this year are going to far exceed the imports. Talking to a daily on the overall performance of the Indian Steel industry Ravi Uppal, MD & Group CEO, JSPL said “I think this year we will be exporting in the range of 7 to 7.5 million tonnes of steel and the imports are going to be about 4.5 to 5 million so this year India will end up being a net exporter of steel. We in JSPL are also exporting steel like the rest of the industry and we have put in a very good performance in export.”
Operating margins of the steel industry improved to 16.3 percent in Q3 FY2017 from 13.4 percent in Q2 FY2017 on the back of increased realizations post the imposition of anti-dumping duties. Coverage indicators too have followed a similar trend sequentially, with industry interest coverage increasing from 1.16 times in Q2 FY2017 to 1.51 times in Q3 FY2017.
In the current quarter, however, profit margins of steel producers are likely to remain under pressure, as most of the high cost coking coal inventory would be consumed in this quarter. Apart from blast furnace operators, which form about 45 percent of the total installed capacity, secondary steel players would also be adversely impacted by the increased input costs of sponge iron and scrap. This, coupled with weak demand conditions, would weigh on the operating margins of the industry in Q4 FY2017.
In the meanwhile, because of various trade protection measures including anti-dumping duty, safeguard duty and minimum import price India’s steel imports declined by 38.5 percent in 11 M of FY2017. “This decline in steel imports has coincided with a strong growth in steel exports by domestic mills, supported by an improvement in the pricing scenario in international markets. As against a wide gap of 7.6 mt in FY2016 between India’s steel imports and exports, exports have surpassed imports in 11M FY2017 by a thin margin and as a result, India has now become a net exporter of steel in the current year” said senior vice-president and group head - corporate ratings ICRA, Jayanta Roy.
Owing to the continuing sluggish sentiment in the real estate and construction sectors, ICRA expects the overall steel consumption growth for FY2017 to be lower than the previous year levels.
Sluggish demand in recent months led to a reduction in price of domestic hot rolled coil (HRC) by about ₹ 2000 PMT in February 2017. Although domestic HRC prices have seen an upward revision by Rs. 1,000 PMT in March 2017, and reportedly the industry is also expects a further price increase in April, the sustainability of the current trend remains uncertain. In fact, the domestic prices are now costlier than landed cost of imports, says ICRA in the report. Nevertheless, the Government’s thrust on infrastructure and affordable housing sectors in the Union Budget 2017-18 points to a favorable demand outlook for the Indian Steel Industry in the medium term.