Domestic steel industry likely to see subdued growth in FY13: ICRA

NEW DELHI: There is bad news for the domestic steel industry, with analysts warning that growth is likely to remain subdued in the near term on account of a slowdown in demand from the key consuming sectors and limited iron ore availability.

ICRA Research, an affiliate of the rating agency said growth in the steel industry is likely to remain muted in FY13, and somewhat lower than the 5.5% growth recorded in FY 12.

Growth in consumption, at 3.9% during April-December, 2012, is unlikely to register any significant improvement in the fourth quarter as well, given the weakness in user industries and an expenditure control exercised by the Government of India in recent months, ICRA in a statement said.

The domestic steel industry had grown at 9.9% and 13.3% in FY 11 and FY 10 respectively.

The third quarter of the current fiscal saw demand from key consuming industries, slow down affecting sales volumes and overall realisations of steel companies. Meanwhile input costs remained high levels, despite a fall in prices of coking coal a key imported raw material. Lower operating margins and high capital charges dented net margins during Q3FY13, says ICRA.

While steelmakers have increased prices, the increase in railway freight rates is likely to offset the impact significantly, the statement said. Pressure on steel makers’ profitability will continue in the near term warned ICRA.