Crisil Ratings has warned that the declining steel prices will impact the operating profitability of domestic primary steel producers, despite a rise in sales volume and a reduction in coking coal prices. The ratings agency estimates that the operating profit margin for primary steel producers will stay within the 15-16% range during the current financial year, down from earlier projections.
Primary steel, which is produced from iron ore, forms the foundation of the steel manufacturing industry. The report highlights that while steelmakers have benefitted from lower input costs and an increase in sales, the fall in steel prices will likely drag down their profitability. Crisil’s Director, Ankit Hakhu, noted that while sales volumes have grown and cost pressures have eased, lower steel prices coupled with flat margins will result in a 5-7% reduction in absolute EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) for primary steel producers this fiscal.
Domestic steel prices have already seen a notable decline, with an expected average drop of 10% from Rs 57,500 per tonne last year. In the first half of this fiscal year alone, domestic steel prices have fallen by 8%, which, alongside a stable demand in the domestic market, is putting pressure on the industry’s bottom line. The report further indicates that although domestic demand remains relatively strong, global steel demand is expected to contract for the third consecutive fiscal year. This has led to an increase in imports, particularly from China, where demand remains subdued. The rise in imports is further straining realisations, affecting steelmakers’ overall financial health.
