According to ICRA estimates, domestic steel demand to grow 9-10% in FY24

In the forecast of the Investment Information and Credit Rating Agency (ICRA) for the financial year 2023-24, the domestic steel demand is expected to rise by 9-10% on the back of government Capital Expenditure (CAPEX). It also stated that the current fiscal year had an estimated demand of 7-8%.

The report further predicted that between FY22 and FY24, domestic steel demand would expand at a Compound Annual Growth Rate (CAGR) of 10.5-21%. The last time the sector experienced such steady, strong growth was before the global financial crisis of 2008. Strong private sector capex at the time allowed for a CAGR of 12.7% between FY06 and FY08.

According to ICRA’s research note on the steel sector, between April-August of FY24, domestic steel demand grew by 13.1%, powered by the government’s infrastructure spending. Central government CAPEX grew 59.1% year-on-year (YoY) in Q1 of FY24, suggesting an accelerated pace of infrastructure spending ahead of the 2024 elections. In sync with demand, steel companies are increasing capacity. Around 14.3 million tonnes (MT) of new steelmaking capacity is expected to come on-stream in FY24.

This would be the largest capacity addition made by the industry in a single year in recent history, says Mr. Jayanta Roy, Senior Vice-President & Group Head, Corporate Sector Ratings, ICRA.

He further stated that despite the burst of new supplies, favourable domestic demand will adequately absorb these upcoming capacities, which will help to improve the industry’s capacity utilization rate to 82% in FY24 from 80% in FY23.

According to ICRA, domestic Hot-Rolled Coil (HRC) prices are currently trading at a premium of US$ 40-45 per tonne over current Chinese FOB spot export bids, which are scheduled to arrive on Indian soil after a two-month delay. Therefore, despite the good demand picture, domestic steel prices are anticipated to stay in check in the upcoming quarters. In Q1 of FY24, domestic HRC prices were adjusted by 8%.

However, with an expectation of elevation in input cost pressures, ICRA expected the industry’s absolute operating profit to sequentially increase by 20-30% in Q2 of FY24.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.