New Delhi: India Ratings and Research (Ind-Ra) has lowered its outlook on steel demand growth by 300 basis points to 4% in FY20 from 7% earlier. Demand in the sector grew 8% in the last financial year. The rating agency revised its outlook to stable-to-negative from stable for the remainder of FY20.
The Indian unit of the US-based Fitch has blamed the fall in demand for the alloy on both structural and cyclical concerns in auto and real estate construction. The outlook also factors in increased import risks especially from Free Trade Agreement (FTA) countries such as Japan and South Korea due to adverse domino impact of the slowing global growth and continuing trade frictions.
Furthermore, raw material availability and price risks may escalate in 4QFY20 if uncertainty over iron ore mine auctions prolongs, the agency said.
Ind-Ra expects overall steel sales volumes and margins to weaken further in the ongoing quarter after industry witnessed margin correction in the March quarter and the first three months of this financial year. But it expects steel demand to recover in the second half of this financial year, supported by pickup in government investments, fiscal stimulus measures, improvement in market sentiment and a lower base in the second half of FY19.
The agency believes limited new capacity additions in FY20 will help balance the demand-supply situation amid sluggish demand in second half of FY20. Steel prices have been continuously softening while raw material cost prices have only seen partial declines, thereby squeezing the gross spreads for steel producers.