Domestic steel consumption to grow by 7 pc this fiscal, FY20: ICRA

The domestic steel consumption growth is expected to grow by 7 per cent during this fiscal and the trend is likely to continue in the next financial year as well, largely driven by the government's focus on the infrastructure sector, says an ICRA report.

"The government's thrust on infrastructure, in particular towards affordable housing, power transmission, and the Railways in the Union Budget 2018-19 is likely to keep domestic steel consumption growth favourable in the medium term, which is expected to grow by 7 per cent during FY2019 as well as FY2020," ICRA said.

According to a the research report, despite healthy demand, domestic steel production growth is likely to remain low at about 2.5 to 3 per cent in the ongoing fiscal due to increased threat from cheaper imports combined with a considerable de-growth in steel exports because of rising trade tensions globally.

Moreover, the moderation in Chinese steel demand and consequent oversupply concerns remain key near-term challenges for the domestic steel makers, the report noted.

"We believe that the steep reduction in international steel prices recently would make domestic steel imports cheaper in the coming weeks, when these shipments start hitting the Indian shores, and this would in turn exert pressure on domestic steel prices in the fourth quarter of FY2019," Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, ICRA said.

On the prices front, though the input costs for domestic steel makers have remained relatively firm, domestic iron ore prices witnessed a sharp increase of 22 per cent between April and December.

"...The ongoing supply shortage in Karnataka following the closure of NMDC's Donimalai mine is unlikely to lead to a significant reduction in domestic ore prices from the prevailing levels," the report said.

However, over a longer period, as Indian steel prices witness a moderation from the current year highs, domestic iron ore prices are expected to ease in FY2020, especially following a resolution of the current supply crunch in Karnataka, ICRA added.