Despite slow demand, steel sector remains stable: Fitch

Despite a slowdown in demand, the outlook for domestic steel producers will remain stable in the second half of the current financial year, a report by rating agency Fitch said.

“The outlook for Fitch-rated steel producers in the country will remain stable in H2, despite slowdown in growth,” the report said.

As per the rating agency, demand for steel is likely to be in the range of 6-7 percent, with higher activity after the monsoons.

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“Slowdown in demand stems from the unfavourable macroeconomic environment,” the agency said which has revised down its forecasts for real GDP growth to 6.5 and 7 percent for FY13 and FY14 respectively, from 7.5 and 8 percent respectively which it had put out earlier.

On profit margins, it said margins would be under pressure during this period due to rise in production cost. “Profit margins will remain under pressure in H2, given persistent increases in production cost and producers’ limited ability to pass on higher costs due to subdued demand from end-user industries,” it said, adding pressure will be greater on non-integrated steel producers.

COTTON SECTOR: Fitch said the rising trend is expected to continue in the September 2012-March 2013 cotton season, as a result of fall in acreage and delayed monsoon, rating agency Fitch said in its 2012 mid-year outlook on Indian textiles.

It said the cotton prices are already on a rising trend, reversing the moderate decline during January-May 2012, and the trend would continue. Prices of power and fuel are edging higher and interest costs continue to be high, although exporters enjoy a breather of a 2 percent interest subsidy, it

added.

The rating agency has revised cotton outlook from negative to stable. The Indian textiles are grappling with weak demand and thin margins, Fitch said.

PAPER SECTOR: The outlook for the Indian paper sector would continue to be negative through the remainder of 2012 given the subdued economic environment, Fitch Ratings said.

The fall in operating profitability of most Indian paper companies was much sharper in H112 than in the last four years due to the falling rupee which increased the prices of coal and pulp, along with the direct impact of rising input prices such as labour, chemicals and power, Fitch said in its 2012 mid-year outlook on the industry.

It pointed out that weaker operating profitability has also impaired internal cash generation for most Indian paper manufacturers which will have a bearing on debt levels throughout 2012.

PTI