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In a report released on Thursday, credit rating agency ICRA stated that India's domestic steel consumption growth is expected to decline to 7-8% in the next fiscal year, down from an estimated 12-13% in the current fiscal year. This slowdown is attributed to moderate government spending during the election period.

 

ICRA highlighted that elevated input costs, import pressures, and softer steel prices are likely to lead to a sequential decrease of 110-115 basis points in the steel industry's operating profit margins in FY2025.

 

The agency noted that domestic steel consumption is projected to decelerate to 7-8% in FY 2024-25, following three consecutive years of double-digit growth. According to ICRA, demand for the ongoing fiscal year 2023-24 is expected to be in the range of 12-13%, compared to 14.5% in the previous fiscal year and 13.3% in the year before that.

 

Jayanta Roy, Senior Vice-President & Group Head of Corporate Sector Ratings at ICRA, stated, "In the six-month period between June and November of 2023, as the government accelerated infrastructure spending ahead of the union elections, domestic steel demand grew at a brisk pace of around 16% over the same period of the last fiscal year." However, Roy highlighted a marked slowdown in consumption growth in December 2023 and January 2024.

 

Roy cautioned that while these are early trends, they indicate a soft demand outlook over the next two quarters as government spending moderates around the election period.

 

Regarding costs, ICRA noted that coking coal, predominantly imported by Indian mills, remains the largest cost component for primary steel producers, accounting for 40-45% of the overall cost, followed by iron ore at 10-15%.