'India's overall steel trade balance may improve on weak Re'

Sharp depreciation in the rupee is likely to help the domestic steel industry lower imports and boost exports in the coming months, which in turn may improve the country's overall steel trade balance, a report said.

The weaker rupee is also likely to translate to higher landed cost of steel imports, which in turn should support domestic prices, rating agency Icra said in its report.

The domestic currency's unabated fall continued for the sixth straight session Wednesday, hitting yet another closing low of 71.75, down 17 paise against the US currency as surging oil prices and weak trend in emerging market currencies weighed on sentiments.

 

Icra noted that in the first quarter of FY19, steel exports dropped by over 33 per cent, whereas imports grew by over 11 per cent, and consequently the country turned a net steel importer, after having been a net exporter for the last two years.

While the consumption levels are likely to ease in a seasonally weak second quarter, the agency said government's continued thrust on infrastructure spends and expected improvement in rural demand on the back of higher minimum support prices (MSPs) is expected to drive the steel consumption growth momentum in the coming months.

Domestic steel consumption grew at a healthy pace of 9.2 per cent year-on-year in June quarter, compared with 7.9 per cent in FY18, driven by strong automobile sales growth and further uptick in demand for longs by the construction sector before the onset of the monsoon, the report said.

The country's finished steel production growth also improved to 5.3 per cent YoY in June quarter, from 3.1 per cent in FY18, according to the report.

In addition, higher absorption of steel in the domestic market kept steel exports low, despite remunerative international prices.

Due to a moderation in demand and increased raw material costs, Icra expects a sequential easing in operating profitability of the industry in September quarter.

Both the operating margins and the interest coverage are expected to be better than the previous year levels due to higher profits at an absolute level, it said.