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Indian steel mills’ profitability likely to improve in near term: ICRA

20 Sep 2017 Evaluate

Domestic credit rating agency, ICRA in its latest report has stated that Indian steel mills are likely to enjoy better profitability in the near term with firm prices of metal and substantial export growth. It also said that buoyant international steel prices have benefited Indian mills to increasingly tap overseas markets, as reflected in a 57 percent Y-o-Y growth in exports during Apr-Aug 2017, helping the domestic steel industry operate at a capacity utilisation of above 80 percent in the financial year 2017-18.

As per the report, steel prices have reported a healthy growth of 14 percent since June 2017, on the back of a sharp recovery in international steel prices and improvement in local demand growth to 4.4 percent in April-August 2017, from 2.6 percent in FY17. It also noted that the Chinese hot rolled coil (HRC) export prices increased by about 40 percent since mid-May 2017, reaching $588 per metric tonne (MT) in the third week of September 2017, supported by China's resilient domestic demand and its supply-side reforms to check the domestic steel overcapacity.

The rating agency further said that operating margins of the steel industry contracted to 12.5 percent in Q1FY2018 from 15.7 percent in Q4FY2017 due to lower steel prices and increased raw material costs, especially for coking coal in Q1 FY2018. It also stated that while the prices of coking coal and iron ore have also increased recently, the extent of increase in domestic steel prices in Q2FY2018 remains higher than that in raw material costs, which points to a sequential expansion in gross contribution levels of steel players.

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