India Ratings and Research (Ind-Ra) has revised its outlook for steel sector from negative to stable. Outlook for steel sector in FY22 (April 2021-March 2022) looks encouraging on the back of improving steel volumes compared to the prior fiscal year. Growth from end-user industries would support healthy demand for steel.
Steel volumes might be improving but there may be a likely moderation in margins per metric tonne as prices are expected to gradually decline in FY22 from the very high price levels recorded in the second half of FY21, the Ind-Ra outlook said.
Demand and supply side would remain strong and recover strongly from the dip in FY20 which was hurt by COVID-19 disruptions in both demand and supply side. Spreads would also be moderate in FY22 as steel prices would face some headwinds but prices of raw material are likely to correct in a limited range.
Long steel products’ demand is expected to grow sharply in FY22 on the back of demand growth from infrastructure sector led by government’s push towards affordable housing, railways and rural electrification and road networks. Demand for flat products is also forecast to grow steeply in FY22 compared to previous fiscal which was a rather weak year pressured by COVID-19. Recovering auto demand and government’s impetus for infrastructure is set drive demand for flat steel.
As India has allowed secondary producers to supply rebars for constructions and infrastructure projects, this is likely to strengthen and improve sector competitiveness and pricing, the research company said.
Iron ore prices are expected to decline marginally in FY22 as supply improves, however, prices would remain elevated until domestic ore output increases to FY20 levels. After Odisha’s iron ore mines ramp-up production, the lessees of auctioned mines coupled with the high premiums paid would likely be transferred towards customers, prices would therefore remain high.
Coking coal prices are expected to be higher in FY22 compared to the prior year but not cross pre-COVID levels. Prices could be volatile for certain months, on the back of concentrated nature of coking coal mining sector and risk of calamity in Australia, Ind-Ra noted.