Steel industry growth to be muted in short term

The domestic steel industry's growth would be muted in the short term as concerns over economic slowdown are expected to prevail for a while, according a report by Care Research.

"We estimate domestic demand for finished steel to grow at about 8-10% during FY13. Domestic finished steel capacity is also likely to increase at a similar pace. While the global supply of steel will continue to adjust itself with the change in global demand, we expect the global demand for finished steel to grow at around 5%," it said.

Increase in excise duty from 10% to 12% for all steel products in Union Budget is likely to be partially passed on to the end-users owing to the current slowdown in demand for steel products, it said.

Increase in basic customs duty from existing 5% to 7.5% for all flat and non-alloy steel products will prove beneficial for the domestic industry as the decision is likely to restrict cheaper steel products imports, especially from China.

New policy measures on the mining sector from the Australian and Indonesian governments continue to remain a major threat for the global base metal manufacturing industries. In addition, the domestic steel industry is highly dependent on imported thermal and coking coal.

CARE Research expects prices of key raw materials to correct in FY13. Owing to the continued oversupply situation in the global steel industry, prices of finished steel products are also likely to remain under pressure. Margins are expected to be subdued owing to the time lag between corrections in raw material and finished steel prices, the report said.