[Ferro-Alloys.com] Backed by expected higher economic growth, the steel demand in India is all set to increase by 3 to 5 per cent in the next financial year although margin pressure would continue due to high production costs and limited scope to pass the same to the consumers.

“Better GDP growth of 5.6 per cent in 2014-15 on the back of a revival in industry growth would lead to better steel demand growth next fiscal. It would be in the range of 3-5 per cent, but not above 5 per cent,’’ Ashish Upadhyay, Director (Corporate Ratings) of India Ratings told reporters in Delhi on Jan 18th. 

According to the report, India's steel consumption grew 0.5 per cent during the April-December period of this financial year to 53.78 million tonnes. However, the report maintained the negative outlook for the steel sector for the next financial year due to its weak credit profile.

Mr. Upadhyay said he expected no major hike in prices next fiscal due to over-capacity in the domestic steel industry, which will continue to limit prices amid the demand increase. Imports are not a major threat and will prevail at this year's level.

India currently has about 95 million tonnes of installed steel capacity and 13-15 million tonnes is expected to be added within 2014-15. “Margins of steel producers would continue to be under pressure, given the high cost of production and their limited ability to pass on hikes in costs. The availability of iron ore should improve, limiting hike in costs. Coking coal prices will also range between $160-175 a tonne,’’ he added.

India Rating expects the credit profile of steel makers to remain weak next fiscal due to their large debt for working capital and capex coupled with modest EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins. Steel makers margins have consistently contracted since 2010-11, it said.

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