A blanket ban against dumping of Steel is a must

Succeeding the post-Covid metals rally, the domestic steel industry maintained high capacity utilisation of over 80%, strong investments, and low leverage from FY2022 to FY2024. However, ICRA noted that this trend is unlikely to continue due to increased cheap imports, which have reduced market share, pressured profit margins, lowered capacity utilisation, and raised leverage levels to support growth plans.

The domestic steel industry witnessed an all-time-high capacity addition of 18.2 mtpa last fiscal, and in the current year, another 15.3 mtpa of new capacity is lined up for commissioning. However, while the domestic steel demand is expected to maintain its solid growth track record of 10-11% in FY2025, domestic mills is, however, struggling to protect their market share from cheaper imports. This is reflected by the much lower 5% growth in domestic finished steel production that we expect in the current fiscal. Coupled with the record ongoing expansion plans, the industry’s capacity utilisation rates are expected to slip from 85% in FY2024 to an estimated 78% in the current fiscal, the lowest India have seen in the last four years.

The health of India’s steel industry is influenced by global trade dynamics, with sub-par growth in China and other key hubs redirecting steel trade to high-growth markets like India. Currently, most tariff protections, such as anti-dumping and safeguard duties, have expired, leaving only a 7.5% basic customs duty. This has made India’s market more accessible to overseas suppliers.

Domestic hot-rolled coil (HRC) prices have largely traded at a premium to cheaper imports, keeping domestic mills under pressure. By November 2024, the premium was $12-16/MT over imports from China and Japan, indicating continued import pressure unless global steel prices recover. India’s finished steel imports are projected to capture 7.0-7.5% of the market share in FY2025, the highest in six years, with net imports set to spike to levels last seen during the FY2016 metals downturn. While China accounted for ~30% of imports in 7M FY2025, 59% came from FTA countries like Japan, South Korea, and Vietnam, benefiting from duty-free access. In ICRA's baseline scenario, domestic hot-rolled coil (HRC) prices are expected to drop by around 10% YoY in FY2025, reaching their lowest levels since FY2021. However, an input cost relief is anticipated, with prime hard coking coal prices forecasted to decline by 24% YoY to $218/MT. Operating profits per metric tonne (MT) of steel production are projected at $110-115/MT in FY2025, slightly lower than the $127/MT recorded in FY2024, with the sector outlook remaining Stable.

With the industry’s earnings moderating from the high watermark of FY2022, and capex plans in full swing, the industry’s debt stock has been steadily rising, and credit indicators gradually weakening since FY2023. In end-September 2024, the industry’s domestic bank debt per tonne of installed capacity inched higher by ~17% to reach US$192/MT, compared to US$164/MT in end-March 2022.In the next seven years till FY2031, domestic mills are targeting to increase the domestic installed capacity by 50% by adding 90-95 mtpa of new capacities. This would entail a large investment pipeline of US$ 45-50 billion. However, unless the industry’s earnings meaningfully improve from here on, sustaining such large-scale investments opens the possibility of a significant spike in industry leverage levels over the medium term, which can accentuate the domestic mills’ vulnerability to external macroeconomic shocks.

With forlorn global growth, India remains a key growth market for steel consumption, supported by urbanisation and industrialisation initiatives. While challenges from imports and pricing pressures persist, government spending and lower input costs may provide relief. May the Indian Steel industry overcome challenges such as pricing pressures and rising imports, while capitalising on opportunities presented by robust domestic demand and government infrastructure initiatives. With innovation, efficiency, and adaptability, may the industry achieve sustainable growth, strengthen its global competitiveness, and contribute significantly to economic progress.

Indian Steel Industry - Nitin Gadkari