New Delhi: An overcapacity situation looms large on the Indian steel sector with about 25 million tonnes of new capacity likely to be commissioned in the next 18-24 months outstripping the growth in demand in medium term, rating agency ICRA said.
“Almost 25 million tonnes of new capacity, which is about 30% of the country’s current production capacity, is expected to be commissioned in the next 18-24 months,” ICRA said in a report.
The capacity addition rate is likely to outpace domestic demand growth in the medium-term, it said, adding that as a result, margins of large players would be adversely affected.
India is the world’s fourth largest steel producer, having produced about 68 million tonnes of crude steel during 2010. Crude steel production in the country has gone up at a compounded annual growth rate of about 9.8% between 2000 and 2010.
The demand had been growing in double digits before the global crisis, but slowed down significantly in 2008. In the last two years, the growth rate was hovering between 6-8%.
ICRA said the consumption was expected to witness some moderation going forward, given the continuing slowdown in demand from key consuming sectors like construction, capital goods and automobiles.
“Thus, the domestic steel industry is likely to face overcapacity in the medium-term, which in turn may push up domestic competition as well as exports, making India a net exporter of steel,” the report said.
ICRA said overcapacity, waning demand and higher capital charges for commissioning large projects are likely to affect the margins of the steel producers adversely in the near to medium-term.
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