India Ratings Maintains Neutral Outlook for Steel Sector in FY25

India Ratings and Research (Ind-Ra) has maintained a neutral outlook for the steel sector for FY25, forecasting demand growth of 9%-12% year-on-year. This projection is supported by steady growth in end-user industries like automobiles and infrastructure. The demand is closely linked with gross fixed capital formation, which is expected to grow by 8.5% in FY25, following a 10.2% growth in FY24. The five-year CAGR ending FY24 stands at 8%, with FY24 witnessing a 13.8% increase in steel demand.

India Ratings and Research

"We expect the domestic demand-supply scenario to be balanced, with growth in demand matching with capacity additions across players; although, the global oversupply situation might keep the import threat high. Raw material and finished goods prices are expected to be range bound on a moderate recovery in global demand. Domestic players are likely to see stable credit metrics, due to higher profitability and improved operating cash flows amid debt-led capex”, says Rohit Sadaka, Director and Head, Materials and Diversified Industrials, Ind-Ra.

The agency expects the global steel demand to be steady with some moderation in China demand due to its transition to low carbon initiatives and moderate demand from European Union (EU) but supported by growth in emerging economies such as India.

Ind-Ra expects global steel prices to be range bound in FY25. Ind-Ra does not consider inexpensive imports into India as a big threat as China, being the largest supplier of steel globally, might continue with its supply discipline policy and likely cut on production for 2024. Ind-Ra expects the sector will continue to face headwinds from global macro trends, and a more rigorous enforcement of environmental protection policies will be a key monitorable.

Ind-Ra has maintained a Stable rating Outlook on its rated entities for FY25 on the expectation of an improvement in the credit profile led by better profitability and a steady interest rate regime, despite capex towards the addition of capacities planned in FY25-FY26. The agency expects steel players’ margins to improve over FY24 levels, due to a ramp-up in capacity utilisation levels and range-bound raw material prices.

The liquidity of large and mid-sized integrated players is likely to be adequate in FY25, led by an improvement in the cash flow from operations in previous years, thereby improving the financial flexibility. This, along with the favourable working capital changes, will support the debt-funded capex in FY25-FY26 and keep the credit metrics steady.
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