Record steel output credit-positive for major cos: Moody's

Says large Indian steel producers have markedly increased their production and sales in the quarter ending Sept

Record steel production by major steel makers notwithstanding the tepid economic scenario and lacklustre consumption is "credit-positive" and would aid in boosting their profitability, according to a Moody's Investor Services report.

"It appears that, despite lukewarm economic environment and slowing Indian steel consumption, India's largest steel producers are churning out steel at record level. This credit-positive event will help boost their profitability," the research arm of rating agency Moody's said.

Attributing two factors - depreciation of rupee and gas shortage - for some of this "anomaly" between the growth in output and demand, it said there was a risk for further dip in plant utilisation in the short-term.

While depreciation of the rupee from 54.3/USD at the end of March to 62.6/USD at the end of September has supported domestic prices, shortage of gas has spoilt the hope of DRI-based steel minor producers, benefiting major players.

According to a Joint Plant Committee report, India's real steel consumption showed a marginal increase of 0.8% for the six months ending on September 30, 2013, at 36.58 million tonnes.

Nevertheless, large Indian steel producers have markedly increased their production and sales in the quarter ending September, it said.

Moody's Investor Services said in the medium-term, the supply-demand balance looks manageable based on expected capacity additions.

"However, in the short term, given that the growth in domestic steel production has outpaced real domestic steel consumption over the last five years, there is a risk of further reductions in plant utilisation unless infrastructure building and the large steel-intensive industries restore their former growth trajectories," it said.