Steel Demand Sees Robust Growth, But Profitability Under Pressure: CareEdge

CareEdge Research Report

During 11 months FY23 (April 2022 – February 2023), the domestic finished steel production and consumption in India grew by 6.2% and 11.6%, respectively, on a YoY basis. However, steel exports declined sharply by 52% YoY due to weak global demand and the imposition of a 15% export duty on steel products from May-November 2022.

Imports increased by 29.5% YoY during this period, and India became a net importer of steel for the first time in three years for the period of October 2022 to February 2023.

Steel players in India witnessed a dip in Ebitda margins for the quarter ended December 2022 as compared to the same period last year. This was primarily due to an increase in coking coal prices and muted steel prices.

According to us, the domestic steel demand growth is expected to be healthy at 8-10% in FY24. This will be driven by an increase of 33% YoY in the government's budgeted capex on infrastructure development and an uptick in the real estate and construction industry.

On the other hand, exports have been increasing on a sequential basis from December 2022 onwards, post the withdrawal of the export duty on steel products and iron pellets. This is expected to result in higher export volumes in FY24.

However, the operating profit margins of steel players are expected to remain under pressure in FY24 due to elevated input costs of iron ore and coking coal. International steel prices are also expected to remain range-bound in the near term.

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