India Ratings & Research revises steel sector outlook to negative

India Ratings and Research (Ind-Ra) in its latest report has revised its outlook of the steel sector to negative from stable-to-negative for FY21E, amid modest steel demand growth expectations of five per cent and margin pressures led by iron ore price risks.

Ind-Ra said high iron ore premiums for new mine owners, both captive and the merchant, could shift the cost positions of steel mills. Further, the slowing economic activity would continue to affect demand growth in the steel sector and any significant pick-up is unlikely.

The rating agency expects steel demand growth to remain modest, in-line with gross factor capital formation of 5.3 per cent in FY21. Further, it believes Chinese steel demand growth risks amid increased ramifications from Coronavirus outbreak could also impact global and domestic steel prices. However, it said some benefits are also expected on the softer imported coking coal and international iron ore prices. Besides, the global steel prices may come at a risk, if Chinese steel producers could not reduce production growth in FY21 in-line with the reducing demand in housing construction and the slowing Chinese economic growth.

Further, the agency added that in case the steel demand does not strengthen up by the second half of FY21E then, new capacity additions along with stressed asset ramp-up could put further pressure on the prices and plant capacity utilisation rates.