Indian ratings agencies are forecasting a challenging year for the country's steel industry from weaker demand and possible disruptions to iron ore supplies.
The fundamentals of the steel sector are likely to weaken in the current 2019-20 fiscal year ending 31 March, with the risk of softening of prices, elevated raw material prices and weak demand, Kolkata-based India Ratings and Research (IRR) said.
Mumbai-based CARE Ratings lowered its forecasts for India's steel consumption growth to 5-6pc from the previous year, down from its previous projection of 5-7.5pc published in February.
India's total steel demand growth rose at a slower pace of 5.7pc to 33.3mn t in April-July compared with growth of 9.2pc in April-July 2018.
A slowdown in automotive industry and a marginal growth in the consumer durables segment affected steel demand, CARE said. Reduced construction activity is also expected to reduce steel consumption.
These factors combined to reduce finished steel production growth to 1.4pc to 18.1mn t in April-May from a year earlier. Crude steel production increased by 2.7pc to 36.9mn t in April-July compared with a 10.6pc increase a year earlier.
CARE also reduced its 2019-20 fiscal year steel production growth forecast to 3-4pc from an earlier 6-8pc. India's total steel output during April-July increased by 2.7pc to 36.85mn t from a year earlier.
A key area to watch out for is the auction of local mines by March 2020, IRR said. Any delay in the process could lead to disruption in domestic steel production in 2020-21.
IRR expects supplies of coking coal to be tight in the coming months, with large-scale Australian producers reducing output. UK-Australian resources firm BHP has said its coking coal output will fall. But India, the largest coking coal buyer from Australia, has been maintaining its monthly import levels.
Both agencies expect consumption to pick up in the short term following the end of the monsoon season in September and its restart of infrastructure and construction activity, although not enough to send steel prices higher.
CARE expects prices of flat products to fell by 4-5pc, with long products to fall at a slower pace of 2-3pc during 2019-20.
