Room for domestic steel price hike paves way for Rs 76,500 cr investments

Indian steel still quotes at a 20-25% markdown in global prices

With domestic steel continuing to sell at a 20-25 per cent discount to international rates leaving room for further hike, the industry is not just poised for a consolidated investment of Rs 76,500 crore but is also likely to see balance sheet lighten to a multi-year low this fiscal.

“Domestic steel prices are still at around a 20-25 per cent discount to the international price and are around 15-20 percent lower than the landed cost of imported steel. Due to this, domestic steel players continue to remain optimistic about the increase in steel prices in future as well,” Brickwork Ratings said in its report.

Domestic steel prices have been seeing an unprecedented rise in the last few months despite repeated lockdowns, criticism from user industry and government slashing duties.

After remaining steady in April 2021, domestic steel prices saw another uptrend recently when the Hot/Cold Rolled Coil (HRC/CRC) prices in Mumbai were revised upwards by around Rs 5,000 per tonne, thus touching a record high of around Rs 70,000 and 83,000 per tonne, respectively, said Brickwork.

The reasons are said to be the higher prices of raw material globally and lower exports from China, the largest producer of the commodity.

With steel prices reaching all-time high levels in the current fiscal, and industry capacity utilisation levels being expected to inch higher towards 80 percent in FY2022, leading steel producers, over the past one month, have announced large capex plans accumulating to 31 million tonne, said ratings agency Icra.

“This would entail sizeable investments of Rs 76,500 crore spanning the next 3-4 years,” said Icra.

Consequently, the industry’s leverage metrics are expected to moderate from FY23 as capital deployment for fresh capacity creation would gather pace. With this, the industry’s total debt-to-OPBITDA is expected to touch a multi-year low of around 1.5 times in FY2022 and the balance sheet of most steelmakers would be favourably poised to fund its upcoming growth plans, said Icra.

Sajjan Jindal-led JSW Steel, Tata Steel, state-owned Steel Authority of India (SAIL), AM/NS India and Naveen Jindal-led Jindal Steel & Power are among the top primary steel producers in the country.

While the domestic steel industry benefits from rising steel prices at one end, the bull run is not only leading to a hike in the cost of infrastructure, real estate projects and consumer goods along with repeated hike in automobile prices, it is also increasing the input costs of engineering MSME exporters, said Brickwork.

The MSME exporters segment which use steel as raw material, are therefore seeking softer input prices to remain competitive in the market, it said.