ICRA revises steel sector outlook on strong Q1
“Domestic steel companies are now significantly less leveraged than in FY2009, when the last steel supercycle ended, following the global financial crises,” ICRA’s report said on Thursday.
The firm, in its latest report, said the positive sentiment around steel-related commodities emanating out of China from the second quarter of FY21 has helped the ongoing metals rally sustain over four quarters, largely cushioning the domestic large steel players from the impact of the pandemic.
Given the strong earnings growth and capex curtailments following the pandemic-related uncertainty, steelmakers started to aggressively deleverage since the second quarter of FY21.
“Industry’s consolidated debt levels declining to 2.0 lakh crore in end-July 2021, from 2.6 lakh crore in end-July 2020, registering a sharp decline of over 21% in a short span of a year,” ICRA’s report said.
ICRA said that the industry’s consolidated borrowing per metric tonne of installed capacity, stood at $180/MT in July 2021, shrinking by almost half from $350/MT prevailing in November 2008.
The steel production growth in during the current financial year is likely to be higher at around 14%, ICRA said.
“After a 7% contraction in steel demand in last year following the pandemic, we expect domestic consumption to grow at around 12% in the current fiscal, not only benefitting from a low base but also an improving outlook for several steel consuming sectors,” said Jayanta Roy, group head-corporate sector ratings at ICRA.
On the supply front around 8 MT of new capacities are expected to hit the market in FY22, along with an incremental consumption ICRA said.
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