Steel demand likely to recover in H2 FY'20 as infrastructure spend may gain momentum: Report

Mumbai: Steel demand is likely to recover in the second half the current financial year on the back of an expected boost to the infrastructure sector, according to an ICRA report.

ICRA noted that a softening demand and a 34 percent dip in steel exports kept the domestic crude steel production growth low at 3.3 percent in 2018-19.

"Domestic steel consumption growth eased to 7.5 percent in 2018-19 from 7.9 percent in the preceding fiscal due to liquidity and fuel price related headwinds faced by the auto sector during the second half," the report said.

 Steel demand likely to recover in H2 FY20 as infrastructure spend may gain momentum: Report

Representational image. Reuters

Steel imports grew 4.7 percent in 2018-19 and this year imports are expected to go down in the coming months as the domestic hot-rolled coil prices are trading at a 6 percent discount to imported offers, it observed.

Despite expectations of reduced imports, domestic steel production growth is likely to remain modest in the second quarter of 2019-20 due to the seasonal weakness in demand, and would recover in the second half of the fiscal mirroring steel consumption trends, it said.

"While there is a scope for an immediate price hike due to current disparity between domestic and imported steel prices, we expect any meaningful price improvement would happen only in second half of FY20, when infrastructure spending is likely to gain momentum and the auto sector is expected to do well on the back of pre-buying ahead of the BS-VI rollout," ICRA Senior VP and Group Head Corporate Sector Ratings Jayanta Roy said.

International steel prices would also remain a strong determinant of domestic prices, Roy said.

"The demand growth moderated further to 6.4 percent in April 2019 and is likely to remain lower than the FY19 levels in the first quarter (of FY20) due to continued weakness in the auto sector and reduced construction-related activities during the general election period," the report said.

This, coupled with elevated coking coal prices, is likely to affect the financial performance of domestic steelmakers in the first quarter, it added.

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Updated Date: Jun 04, 2019 19:17:56 IST