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Icra upgrades outlook for Indian steel sector to stable

Icra had earlier this year revised its outlook for the sector to negative from stable.

In order to support the high level of steel production and ore stockholding as insurance against supply disruptions, Chinese imports of iron ore till November were up 10.9% over the corresponding period the year before.

Ratings agency Icra on Monday upgraded its outlook for the Indian steel sector to stable on the back of improving demand and prices.

Icra had earlier this year revised its outlook for the sector to negative from stable.

In a statement on Monday, Icra said “steel sector outlook upgraded to stable from negative on the back of improving demand and prices.”

The domestic steel sector has witnessed a strong revival in second quarter of 2020-21, it said. This, Icra said, is result of a combination of factors like a strong retail demand emanating from a thriving rural economy, and green shoots of recovery in white goods and the automobile sector, especially from tractors, passenger vehicles and two-wheelers.

The momentum has strengthened further in December quarter. The cumulative domestic steel demand in October-November has already surpassed the pre-COVID-19 levels, it said.

“We are gradually seeing a more broad-based pick-up in economic activity with every passing quarter, which makes us believe that the recovery in domestic steel demand would sustain in the near term at least. “The revival in demand has been surprising, and the steel industry’s ability to claw back to the pre-COVID-19 levels of demand within six months of a global pandemic outbreak has been remarkable,” Jayanta Roy, Senior Vice-President & Group Head, Corporate Sector Ratings, ICRA, said.

Consequently, Icra is revising its 2020-21 steel demand forecast to a contraction of around 12 per cent, compared to initial forecast of 23 per cent contraction made in April 2020.

The sector outlook is also revised to stable from negative, he said.

On production, Icra said the share of top six steel producers in total crude steel production, which remained at about 55 per cent historically, has also risen to about 65 per cent in recent months. It further said domestic hot-rolled coil (HRC) prices have been revised upwards multiple times in recent months and are ruling at a multi-year high level of Rs 49,000 a tonne.

The price hikes have been supported by improving demand from the automobile and white goods sectors, rising international prices and a cost push in the form of higher domestic iron ore prices, it said.

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