Jayanta Roy at ICRA Ratings says anti-dumping duty was already there for one year but was provisional, and now the government has made it applicable for four more years.
The continuation of anti-dumping duty will ensure level playing field for domestic companies.
On further measures, analysts at Emkay Research feel easier/faster compliances for the opening of mines recently won in e-auctions can boost the sector's prospects.
Meanwhile, economic activity in China has been gaining pace and the Chinese steel output had risen 8.5 per cent — to an all-time high of 92.27 million tonne (MT) — in May 2020 compared to April, according to Kotak Institutional Equities' latest metals update. On a year-on-year basis, too, the output in May was 4.2 per cent higher, and analysts attributed this to strong demand from the construction sector, as China also saw the cement output jump more than 8 per cent.
In India, too, demand is inching up post the easing of lockdown. Steel consumption for May was at 3.1 MT. Though it was 65 per cent lower on a YoY basis, it was much better than April's figure of 1 MT, according to PhillipCapital. The capacity utilisation is improving and pegged at 85 per cent in June, as against 50 per cent in May.
On the flip side, the first half of 2020-21 is likely to remain challenging, says Roy, who expects demand normalisation to be achieved only by the March 2021 quarter. Overall, steel demand is expected to decline 20-22 per cent YoY in FY21, according to ICRA's estimates, and that too, provided there is no second wave of Covid-19 infections leading to more lockdowns. Emkay Research, in fact, believes demand will return to normal only from the June 2021 quarter.
In the absence of sufficient domestic demand, large producers are currently tapping the export market. This can be seen in the sharp jump in net steel exports in May to 745,000 tonne, compared to imports of 217,000 tonne in the corresponding period last year. While this is supporting volumes and provides breathing space to domestic manufacturers, exports fetch lower realisations and hence may not reflect favourably in their June quarter profitability, feel analysts.
The rising production in China is also not good news
for exports, especially of billet.
Lastly, domestic prices remain under pressure with subdued demand. The near-term pricing outlook is also not encouraging as higher domestic supplies will keep realisations under pressure.
Regarding individual companies, analysts say, cheaper raw materials, such as coal and iron ore, will benefit convertors, such as JSW Steel.
For JSPL, the benefits from higher volumes may continue; Sarda mine iron ore inventories will help drive earnings and reduce debt, feels Amit Murarka of Motilal Oswal Financial Services. For Tata Steel, its integrated cost-efficient Indian operations lend comfort, but lower coal costs can benefit mainly its European operations.
The key for its Europe business, however, is the success of ongoing restructuring attempts. For SAIL, while subdued realisations don’t bode well, “the company can benefit from current levels as its mills are ready to produce value-added products as soon as demand resumes,” say analysts at Emkay Research who prefer companies
with higher domestic sales and those without any IBC commitment.
However, overall, the concerns will only reduce if demand picks up, and that remains a blind spot.