The rating agency Icra has predicted a slowdown in domestic steel consumption growth for the next financial year (FY25). This comes after three consecutive years of double-digit growth in the industry. Icra forecasts a growth rate of 7-8 per cent in FY25, compared to an estimated 12-13 per cent in the current year (FY24).
The rating agency attributed this moderation to a challenging operating environment. Steel companies are expected to face several headwinds, including softening steel prices, rising input costs and a potential temporary dip in domestic demand around the upcoming elections.
Additionally, Icra expects a weak external environment to impact global steel trade flows. With many major steel-consuming regions experiencing sluggish economic activity, India has become an increasingly attractive market. This trend is expected to continue, with India projected to become a net importer of finished steel in FY24 for the first time in five years.
Icra anticipated India’s net steel import position to persist in FY25 unless there is a significant improvement in the global economic climate.
Further, the slowdown in domestic steel consumption growth coincides with a period of high capacity utilisation within the industry. Driven by accelerated government infrastructure spending in the latter half of 2023, domestic steel demand surged by around 16 per cent during that period compared to the previous year. This strong demand helped propel industry capacity utilisation to a ten-year high of 88 per cent in FY24.
However, data for December 2023 and January 2024 indicates a significant deceleration in consumption growth, down to just 6.5 per cent. Icra interprets this as a potential signal of softer demand in the coming quarters, potentially due to a moderation in government spending around the election period.
In addition, Icra expects rising coking coal consumption costs and a 25-30 per cent increase in domestic iron ore prices since August 2023 to squeeze industry profitability in the second half of FY24. This could lead to a significant decline in steel mill earnings compared to the first half of the current financial year.
