The sharp rise in international coking coal prices
besides an almost stagnant steel
demand pose challenging times ahead for the domestic steel
players, ratings agency ICRA
said on Friday.
demand remained largely stagnant in the first quarter of FY16, with consumption growing by just 0.4 per cent year-on-year (y-o-y) during this period, ICRA
said in a statement.
"Cost pressures amid weak demand signal challenging times ahead for domestic steel
players," it added.
With demand for steel
starting to improve from July 2016 onwards, steel
consumption growth in Q2 was much higher at 6.8 per cent.
"However, going forward, an anticipated slowdown in the real-estate
sector on account of government's demonetisation drive will impact demand of long steel
players in the immediate term," it said.
Senior VP and Head (Corporate Ratings) Jayanta Roy said given that a majority of the small to medium-sized secondary steel
players in India
are positioned in the long product segment, impact of this slowdown in real estate demand is expected to affect their capacity utilisation levels.
In the flat product category on the other hand, impact of the slowdown would be limited, though rural demand for some of the flat products like corrugated sheets and galvanised sheets is likely to reduce in the near term, transactions being largely cash-based, ICRA
For the auto sector, the impact of demonetisation is expected to be marginally negative in the near term, especially for the two-wheeler and three-wheeler segments, where the share of the cash purchases has remained higher, it added.
expects the recent sharp rally in international coking coal prices
to hurt the profitability of domestic blast furnace players in Q4.
Global contract prices of benchmark low volatile premium hard coking coal (HCC) for Q3 have been settled at $200 per tonne, showing a 116 per cent quarter-on-quarter (q-o-q) increase.
Moreover, given that premium hard coking coal prices
have steadily increased since October from $213 a tonne to $309 per tonne at present in the spot market, contract prices in Q4 are poised to be settled at an even higher level than $200 a tonne.