In a positive outlook for the steel industry, ICRA has revised its domestic steel consumption growth target for FY2025 upwards to 9-10 per cent, from the earlier estimate of 7-8 per cent. This adjustment comes as the sector experiences robust demand and moderating input costs.
Q1 FY2025 Earnings to Rise
According to ICRA’s latest note on the steel sector, domestic steel mills are expected to see an increase in earnings in Q1 FY2025 due to favourable trends in input costs and rising steel prices. The report highlights that steel consumption grew by 11.3 per cent between February and April 2024. Government capital expenditure until February 2024, along with strong demand from the housing and real estate sectors, has driven this resilience.
Revised Growth Targets and Earnings Outlook
Given these trends, ICRA has adjusted its full-year steel demand growth forecast to 9-10 per cent, which is 200 basis points higher than the previous estimate. This revision is expected to lead to an uplift in the sector’s earnings. ICRA has retained the sector's outlook as Stable, projecting the industry’s leverage (total debt to operating profits) to remain at a comfortable level of 2.0-2.5 times in FY2025.
Industry Insights and Expert Commentary
Girishkumar Kadam, Senior Vice-President & Group Head, Corporate Sector Ratings at ICRA, noted the steel industry's rapid growth over the past three years, surpassing the rate seen since the global financial crisis. In FY2024, the industry registered a consumption growth of 13.6 per cent, slightly below the peak of 13.9 per cent in FY2006. Despite ongoing Parliamentary elections, demand has remained healthy, prompting an upward revision in FY2025 average steel prices by 2-3 per cent, expected to boost earnings by USD 12-18 per tonne.
Cost Trends and Import Pressures
ICRA’s earlier estimate placed the FY2025 baseline spot price for Australian prime hard coking coal at USD 250-260 per tonne. Prices have since trended down by 28 per cent, from a high of USD 338 per tonne in January 2024 to USD 243 per tonne in May 2024.
This moderation in coking coal costs, combined with a sequential increase in domestic flat and long steel prices, is expected to significantly improve Q1 FY2025 earnings compared to Q4 FY2024 lows.
However, finished steel imports are anticipated to remain high in FY2025 as global steel trade flows shift towards high-growth markets like India. India’s finished steel imports rose by 38.2 per cent in FY2024, and are expected to increase by another 13-14 per cent in FY2025, making India a net steel importer for the second consecutive year.
Capacity Expansion
Post-COVID, the steel industry has been on an expansion spree, commissioning 26.3 million tonnes per annum (mtpa) of new capacity between FY2021 and FY2024. An additional 27.5 mtpa is expected to come online between FY2025 and FY2027, with an unprecedented 15.6 mtpa capacity addition slated for FY2025 alone. Despite these expansions, the industry's utilisation levels have reached a decadal high of approximately 88 per cent in FY2024/FY2025E, thanks to strong incremental demand.
ICRA's revised outlook underscores the robust growth and resilient demand in India’s steel sector, driven by strategic capacity expansions and favourable economic conditions. As the industry continues to navigate global challenges, its strong domestic demand and moderated input costs position it well for sustained growth in FY2025.
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