ICRA Foresees Notable Increase in Steel Sector Profitability

SEATTLE (Scrap Monster): The Indian ratings agency, ICRA, in its steel sector report published on Wednesday, said that domestic steel sector companies in India are likely to report improved profitability in the second half of the current year. This is mainly on account of estimated pickup in demand during festive season, driven by increased government spending on construction and infrastructure.

The analysis of steel sector companies that represent nearly 60% of the total industry size suggests that falling prices and subdued domestic demand coupled with firm raw material costs have resulted in restricted revenues and operating margins in Q1 fiscal 2020. The above factors are likely to result in muted financial performance by steel sector companies in Q2 as well.

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The industry operating environment continues to remain challenging in FY 20, said Jayanta Roy, senior vice-president and group head (corporate ratings), ICRA. The steel sector operating margins are likely to post a decline by around 18% in FY 20, slightly lower when matched with the 23% decline posted in FY 19.

However, the steelmakers are likely to benefit from sharp decline in coking coal prices and better demand expectations from construction and infrastructure for the remainder of the year.

Also, the domestic steel consumption growth is likely to decelerate to 5-6% in FY 2020, as compared with 7.9% in FY 2019.