Rising Input Costs and Weak Prices to Hit Domestic Steel Sector Earnings
The durability of the current upcycle in steel sector is much dependent on the spread of Omicron variant.
SEATTLE (Scrap Monster): The latest report published by the ratings agency ICRA noted that the higher input costs and weak steel prices are likely to impact steel sector earnings in India from December quarter onwards. Despite this, the agency continued to maintain an overall positive outlook for the sector over the period of next twelve months.
The domestic steel industry managed to record another all-time high quarterly profit in Q2 FY22, despite moderation in steel spreads on account of higher costs. The robust performance was mainly due to higher deliveries, triggered by recovery in economic activity in the country post the second wave of the Covid-19 pandemic.
According to ICRA, the domestic steel mills are likely to witness slight moderation in input cost pressures, as seaborne coking coal prices have declined by almost one-fifth, compared with the peaks recorded during mid-November this year. The benefit of this could get reflected in Q4 FY2022 results, it added.
The ratings agency expects the consumption cost of coking coal to surge higher by around 65-70% in Q3, when compared to the prior quarter.
The durability of the current upcycle in steel sector is much dependent on the spread of Omicron variant, which in turn may lead to much more severe disruption in economic activity than is seen today.