Steel sector to weaken in FY20 due to twin impact of softer prices and high input cost


Fundamentals for the steel sector are likely to weaken in FY20 under the twin impact of softer prices and higher input costs on the back of low demand. Domestic steel companies will be impacted by muted demand from auto sector, even though government projects in affordable housing and infrastructure are expected to improve the demand scenario, India Ratings and Research (Ind-Ra) has said in its latest sector report.

“Overall, the fundamentals for the steel sector are likely to weaken in FY20, with the risk of softening of prices, elevated raw material prices and weak demand. However, the impact of these factors could be partly off-set by favourable demand-supply balance for industry participants, it said.

“On the domestic front, the Indian steel sector is likely to see robust demand from the affordable housing and infrastructure sectors, bolstered by various government schemes and projects. However, demand from the automobile sector is likely to be muted,” it said. A key area to watch out for is the auction of mines by March 2020, where any delay could lead to disruption in domestic steel production in FY21, the Ind-Ra report added.

Supply of coking coal is likely to be tight in the coming months, the report said with large Australian miners reducing their output. However, with India, the largest coking coal importer from Australia, maintaining its monthly import levels, the agency expects coking coal prices to remain firm in near to medium term. However, Ind-Ra expects a bearish trend to prevail in iron ore prices in the coming months.

While ore prices rose 48% year on year to US$ 135/tonne in July 2019, as global ore major Vale of Brazil cut its production due to a dam collapse in January 2019, supply showed signs of recovery in July 2019. In China mills reluctant to increase iron ore inventories due to lower demand could also rein-in prices.





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