India Ratings and Research (Ind-Ra) has revised its FY21 outlook for the steel sector to negative, from the earlier stable to negative. This outlook revision was made looking at a modest steel demand expectation of 5pc and margin pressure on a few mills due to increased iron ore prices. High iron ore premiums could increase the cost of production for steel mills.
Non-integrated steelmakers and new captive steel producers may have to face cost pressure. Average premiums for about a quarter of India’s newly auctioned iron ore mines could be above 100pc, leading to increased iron ore prices, according to Ind-ra.
Demand growth in the steel sector is unlikely due to India’s slow economic activity. Ind-Ra’s GDP estimates were 5pc for 2020 and 5.5pc for 2021, also lower than the expected level of 6-6.5pc.
In 2021, global and domestic steel prices are likely to be hurt if Chinese steelmakers continue to produce with decreased demand from the housing sector and slow Chinese economic growth. If steel demand fails to pick up in the second half of 2021, modernisation and expansion plans by several domestic companies could further pressurise steel prices.