ICRA Revises FY25 Steel Demand Growth to 9-10% Amid Strong Sector Trends

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ICRA Revises FY25 Steel Demand Growth Target to 9-10%, Reflecting Strong Sector Trends

Team FS

04/Jun/2024

Key Points:

ICRA revises FY25 steel demand growth to 9-10%, up from 7-8%.
Domestic steel consumption grew by 11.3% between February and April 2024.
India's finished steel imports increased by 38.2% in FY24, making India a net steel importer.

Credit rating agency ICRA has revised its FY25 full-year steel demand growth target to 9-10%, an increase of 200 basis points from the previous estimate of 7-8%. This revision reflects recent trends in the sector, with domestic steel consumption registering an 11.3% growth between February and April 2024. In its report on the steel sector, ICRA noted that while government capital expenditure was robust until February 2024, other steel-consuming sectors, such as housing and real estate, have continued to drive strong demand.

Senior Vice-President and Group Head of Corporate Sector Ratings at ICRA, Mr. Girishkumar Kadam, stated that the steel industry has experienced its fastest growth in the last three years since the global financial crisis. In FY24, the industry saw a consumption growth of 13.6%, slightly lower than the peak of 13.9% recorded in FY06 during India's private sector capital expenditure boom.

He also mentioned that, despite ongoing elections, demand remains strong, leading the rating agency to revise its baseline FY25 average steel price forecast upwards by 2-3% over previous estimates made in February 2024. This is expected to result in an earnings uplift of US$ 12-18/metric tonne (MT) for the current fiscal year. The industry's leverage, measured as total debt to operating profits, is expected to remain at a comfortable level of 2.0-2.5 times in FY25, supported by better realizations and higher deliveries, making the Indian steel industry resilient to a potential global demand slowdown.

However, a subdued economic outlook in China and other major steel-producing regions has redirected steel trade flows to high-growth markets like India. India's finished steel imports increased by 38.2% in FY24, and he noted that India became a net steel importer in the last fiscal year after 5 years. With weak global growth projected for the coming quarters, domestic steel imports are expected to rise by 13-14% in FY25, maintaining India's status as a net steel importer.

In summary, ICRA's revision of the FY25 steel demand growth target to 9-10% reflects the strong trends in the sector, driven by robust domestic consumption and government capital expenditure. Despite the challenges posed by a subdued global economic outlook, the Indian steel industry is expected to continue its growth trajectory, supported by higher average steel prices and resilient demand. The increase in finished steel imports further underscores the sector's dynamic nature and its ability to adapt to changing global trade flows.

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ICRA Revises FY25 Steel Demand Growth Target to 9-10%, Reflecting Strong Sector Trends

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