Steel consumption in India to pick up: Moody's

Expects steel comsumption to pick up once the govt's infrastructure spending policies are put in place

Steel consumption in India is set to pick up once the new government's infrastructure spending policies are put in place, Moody's Investor Service said today.

"The new Indian government's inaugural budget announced on 10 July included a number of proposals that we consider credit positive for Indian steel-makers. In particular, we expect steel consumption in India to pick up once the government's infrastructure spending policies are put in place," it said.

Indian steel consumption grew by just 0.6% in 2013-14 fiscal, its lowest in four years, to 73.93 million tonnes (MT), mainly impacted by a slower expansion of the domestic economy and lower imports.

The higher consumption would benefit Tata Steel's Indian business, which is ramping up its steel capacity. The first sales of steel from Tata Steel's new plant at Odisha will come on stream in the spring of 2015, which will add 30% more capacity to its highly profitable operations, it said.

"While we do not expect the company's EBITDA per tonne to improve, we expect the additional shipments to increase the group's overall profitability," Moody's Investor Service said.

The agency has also revised its outlook on Asian steel industry has to stable from negative.

"The improved outlook mainly reflects our expectation that the profitability of Asian steel manufacturers will increase moderately year-on-year in the next 12 months," said Jiming Zou, a Moody's Assistant Vice President and Analyst.

The improvement would be mainly driven by faster demand growth than net capacity increases in China, which will result in higher utilisation rates.

Moody's expects steel demand growth in China to slow to about 3% during the next 12 months from about 9% in 2013 because GDP growth, fixed-asset investment and housing construction will slow.