Steel demand likely to remain weak in FY20

Kolkata: The situation in the domestic steel sector is still nothing to write home about. In fact, the expected revival of demand from the affordable housing and infrastructure sectors notwithstanding, the overall steel demand is likely to remain weak and fundamentals for the steel sector are likely to weaken in FY20. And that can be attributed to the risk of softening of prices, elevated raw material prices, besides the weak demand, analysts feel.

"Overall, the fundamentals for the steel sector are likely to weaken in FY20, with the risk of softening of prices, elevated raw material prices and weak demand. However, the impact of these factors would be partly off-set by favourable demand-supply balance for industry participants," said the first monthly edition of India Ratings and Research's credit news digest on India's steel sector for July 2019.

The report highlights the demand-supply scenario, price trends, imports/exports in both India and China, encompassing finished steel products (both flat and long), scrap, iron ore, coking coal etc., while also looking at the impact of end-user industries on India's steel sector. The report further covers Ind-Ra's recent rating actions.

Going by the Ind-Ra study, a key area to watch out for is the auction of mines by March 2020. Any material delay in the due process could lead to disruption in domestic steel production in FY21. Iron ore prices rose 48 per cent YoY to $135/MT (CNF India - Fe 64 per cent) in July 2019, largely because Brazil-based Vale SA, a global leader in iron ore and nickel production, cut its production on account of the collapse of a dam in January 2019.