Steel demand in India will grow by 7-8% in the 23rd fiscal

Revenues for the domestic steel industry for the next 12 months ending FY23 are expected to remain strong despite pressure on production costs, resulting in some slowdown in earnings compared to the FY2022 top. With rising steel prices partially offsetting rising coal and energy prices, ICRA maintains its positive outlook for the steel industry.

The industry's capacity utilization rate will be around 80% in FY 2023 after an eight-year hiatus, and building on the prospect of major infrastructure spending plans, domestic steelmakers have announced major capacity expansions to ~34 Mtpa (mtpa). will be operational by fiscal year 2026, the ICRA report said.

Commenting on the industry trend, Mr. Jayantha Roy, Senior Vice President and Head of Corporate Sector Ratings Group, ICRA, said: “Domestic steel demand since December 2021 about 11%, which was last achieved back in fiscal year 2011. Supported by the government's big infrastructure spending plans, domestic steel demand is projected to grow by 7-8% in FY 2023."

“In addition, sanctions on Russia could open up new export opportunities for Indian steel mills in regions such as Europe, the Middle East and the US. However, in the near future, steel producers will face pressure on production costs as Russia remains a key global supplier of many steel raw materials,” said Jayanta Roy.

Given two consecutive years of strong performance, steel industry consolidated debt is at its lowest level since March 2011; As such, the industry's credit metrics have improved significantly, with total debt/OPBITDA reduced from 4.4x in FY20 to about 1x in FY2022 (F).

ICRA notes that despite massive expansion plans, given the deleveraging that has occurred over the past six quarters and the robust cash flows that are likely to be generated, the steel industry is now more resilient to the risks associated with projects that significantly weakened the creditworthiness of the sectors in the previous capital investment cycle in FY2012-2016. With investments in upcoming projects remaining relatively moderate in the early years of implementation, the industry's key leverage ratio to total debt/OPBITDA is expected to remain at a comfortable 1x level well into FY2023.

However, Roy adds: “The key downside risk to ICRA's positive outlook comes from a sharper-than-expected increase in Fed interest rates, a further escalation of the Russo-Ukrainian war, continued pressure on commodity supplies, or a significant deterioration in the situation. Chinese housing sector, all of which could materially impact global steel demand in the coming quarters.”