Indian steel players to be more profitable in near term: Icra

Domestic steel players are likely to enjoy better profitability in the near term due to improved steel prices in the current year, supported by imposition of minimum import price (MIP) by the government, rating agency Icra said.

Post the operationalisation of MIP, domestic hot-rolled coil (HRC) prices have witnessed a sharp increase of about 25% from their lows reached in February 2016, according to Icra's quarterly research update report on the steel industry.

Further, industry players can see additional gains due to an increase in sales volumes, as imports are likely to reduce in the current year.

Although MIP is scheduled to expire in the second quarter of the fiscal, currently buoyant international prices, along with the extension of safeguard duty (SGD) up to March 2018, will continue to help Indian steel producers, it said.

"While the prospect of international prices declining again cannot be ruled out, given the still adverse demand- supply equation in the world, the final outcome of the anti- dumping investigations initiated by the Directorate General of Anti-Dumping and Allied Duties would be a key determinant of longer term price trends in the domestic market," said Jayanta Roy, Senior VP and Co-Head, Corporate Sector Ratings, Icra.

Although India's steel consumption growth improved to 4.6% during 2015-16 from 3.1% in the previous fiscal, driven by the automobile and road construction sectors, a sustained recovery in other steel intensive sectors like capital goods and infrastructure is still not in sight, the report said.

Domestic finished steel production, on the other hand, de-grew by 1.9% during the previous fiscal as a substantial chunk of the incremental domestic demand was captured by the burgeoning steel imports, it added.

Despite a slowdown post September-2015, India's steel imports still managed to register over 25% annual growth in the last fiscal.

Moreover, due to the weak international steel prices, domestic manufacturers were reluctant to push exports, which contracted by over 27% during the previous fiscal.

On the raw material front, India's iron ore production grew by 23% in the last fiscal, reaching 155 million tonne.

It is expected to increase further this year, and prices are unlikely to recover in the near term, which would be beneficial to domestic steel mills, Icra added.