Steel makers seen stepping up capex, says Crisil

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July 07, 2021 4:00 AM

“A sharp increase in the prices of steel will lift the operating margin of primary steel manufacturers by 500 bps to 32-33% this fiscal on-year,” Crisil said, adding that despite capex ramp-up, stronger balance sheets will support positive credit outlook for the steel makers.

While some easing is likely over the rest of 2021, prices may average $750-800 per tonne, still up 60% on-year, Crisil said.While some easing is likely over the rest of 2021, prices may average $750-800 per tonne, still up 60% on-year, Crisil said.

Higher operating margin due to higher prices of the metal will help domestic steel makers to “double down” on capital expenditure and continue with deleveraging and strengthening of balance sheet, rating agency Crisil said in a report on Tuesday.

“A sharp increase in the prices of steel will lift the operating margin of primary steel manufacturers by 500 bps to 32-33% this fiscal on-year,” Crisil said, adding that despite capex ramp-up, stronger balance sheets will support positive credit outlook for the steel makers.

The report is based on top five steel makers, including Tata Steel, JSW Steel, AMNS India and JSPL, which account for 58% of the domestic production last fiscal.

Crisil said domestic steel prices, which are significantly driven by the landed cost of imports, may further go up even if global prices ease as the price gap between domestic hot rolled coil steel and landed cost of imports still stands at 20%.

Global steel prices, rallying from last year’s lows, were up 2.1 times on-year in June, reaching the highs last seen in 2008. While some easing is likely over the rest of 2021, prices may average $750-800 per tonne, still up 60% on-year, Crisil said.

Global steel prices will get support from strong demand, supply tightness of iron ore and measures taken by China to reduce exports.

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