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Input costs to remain elevated for Indian steelmakers in the near term - ICRA

Steel News - Published on Wed, 06 Mar 2019

Image Source: Steelguru
A ICRA Ratings note said “Indian steel makers have to grapple with higher cost of production in Q4FY19 due to a rise in input costs, as per an. Subsequent to the rally in seaborne iron ore prices as a result of supply disruptions in Brazil, domestic miners raised iron ore prices by INR 400-600 sequentially in February 2019. In addition to rising ore prices, domestic blast furnace operators would also witness increases in coking coal costs during the ongoing quarter by around INR 800 compared to Q3FY19. This in turn would increase steelmaking cost by around INR 630 sequentially.”

Mr Jayanta Roy, Senior Vice-President & Group Head, Corporate Sector Ratings, ICRA said “Indian steel consumption growth improved marginally to 7.9% in 9M FY19 from 7.8% in H1 FY19, supported largely by a pick-up in construction activities, notwithstanding an easing in demand from the automobile sector, which faced headwinds during Q3 FY19 in the form of a liquidity crunch and increased fuel prices. Continued thrust on infrastructure spending by the Government, increased budgetary outlay for railways and roads, as well as recent policy support to the real estate sector augur well for domestic steel demand in the near-to-medium term. Despite a sharp 40% contraction in steel exports during Q3FY19, supportive domestic demand conditions led to an improvement in the steel production growth to 4.7% in 9M FY2019 from 4.4% in H1 FY2019.”

He added “Although domestic HRC prices are currently trading at a premium over imported prices which were contracted earlier, recent input cost-driven increase in international prices would make steel imports costlier in the coming months, and in turn support domestic steel prices in the near term.”

ICRA expects the operating profitability of the industry in Q4FY19 to remain under check due to a further increase in input costs and sequentially lower steel prices. In line with the operating margin trends, the industry’s interest coverage reduced to 3.3 times in Q3FY19 from 3.4 times in Q2FY19, but is likely to remain under pressure in Q4FY19, because of a likely moderation in operating profitability. Nevertheless, interest coverage is expected to remain better than the previous year levels on account of lower interest expenses in absolute terms.

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Posted By : Ratan Singh on Wed, 06 Mar 2019
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