In the first half of the current fiscal year, long steel production increased 13 per cent year-on-year, and sponge iron production rose 7 per cent year-on-year.
However, moderation in demand led to a fall in steel prices, adversely affecting SMEs. Prices of re-rolled TMT bars fell 10 per cent in the first half of the current fiscal year, and that of coal-based sponge iron fell 18 per cent.
CRISIL Research expects prices to pick up in the second half, as demand improves.
Overall steel demand is expected to moderate to 4-5 per cent this fiscal year, from 8.8 per cent in the last. Weak demand from the automobile and construction sectors has curtailed offtake.
Realisations are also expected to contract, pruning operating profits. And with moderate operational performance eroding net worth, return on capital employed is also expected to shrink. Also, the cash conversion cycle is expected to remain stretched on account of high debtor and inventory days.