Worries over escalation of the trade war between China and the US has kept international steel prices subdued.
Further, input costs have remained firm as well. Moody’s says that prices of key steel-making inputs iron ore and coking coal will stay high after rising more than 60 per cent and 20 per cent, respectively, in the June 2019 quarter from a year earlier, leading them to change their outlook on Asian Steel producers.
Rising costs and narrowing product spreads are expected to weigh on profitability. Given the soft international prices, steel exports from India are on the decline, while imports into the country are on the rise.
Monthly imports have surged 37.8 per cent during the April-July period. The proportion of imports from countries in the ambit of the FTA, or free trade agreement (at nil import duty), is on a rise as well (54 per cent in April to 66 per cent in July).
Industry sources say the price difference between Indian steel and that from FTA countries stands at $40 a tonne. This gap needs to be bridged, either by a hike in safeguard duty, or a reduction in export duty.
Data shows that demand growth, which stood at 6.4 per cent in April, was at 3.5 per cent in July.
While the monsoon has been good, problems pertaining to freeze in the credit market (lack of liquidity in the system) as well as slower expenditure by the government on infrastructure, need to be addressed to boost the domestic steel demand, says Sheshagiri Rao, Joint Managing director and Group CFO of JSW steel.
Given the muted outlook on the sector, analysts at Edelweiss have a neutral rating on Tata Steel
and JSW Steel, and a buy rating on JSPL, given the focus on niche products.