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Monday, January 19, 2015
Domestic steel demand to improve gradually: ICRA
[Editor: Though the domestic steel consumption growth remained nominal at 1.3% during the April-November period last year, but what is to be understood is that the government of India, is expected to spend around $1 trillion in the 12th five-year plan (2012-13 to 2016-17) on the infrastructure sector which will boost demand for the Building Materials, like Steel, Cement, Aluminum, etc. It is interesting to note that this massive infrastructure spending is equivalent to around 10% of GDP (being spent on infrastructure) which has never happened in the past. Therefore, buy the stocks from these sectors]
Any significant pick up in domestic steel demand can at best be gradual as key end user industries remains fragile despite a growth in the automobile sector in the current year, ICRA said in its report here.
Domestic steel consumption growth remained nominal at 1.3% during the April-November period last year.
On the supply side, although steel production trend tracked declining consumption pattern, it still remained higher than demand growth at 2.5% during the first eight months of FY15.
"Moreover, the substantial discount at which imported steel is available in the country, led to a surge in imports of steel, which reported a growth rate of almost 49% during April-November 2014 as against a fall in steel export by around 5% during the same period.
"This has led to India becoming a net importer of the metal as against its status as a net exporter in FY14," the report said.
Higher production growth relative to consumption levels and rising imports also point towards an inventory build-up in the steel market, ICRA said.
Although pricing pressures from cheaper imports and supply shortages in iron ore are likely to stay in the near term, ICRA expects the profitability of domestic steel players to remain stable on the back of softer raw material prices, and a gradual recovery of demand in some of the end-user industries.
However, debt protection metrics are not expected to improve significantly due to high debt levels of companies, and the fact that interest rates would still remain at elevated levels in absolute terms, notwithstanding an expected moderation this year year.
Courtesy: Business Standard