Anti-dumping duties to help domestic steel players tide over the current downturn: ICRA.

NEW DELHI: Indian credit ratings agency ICRA expects that the imposition of provisional anti-dumping duty (ADD) on hot-rolled and cold-rolled coils for six months will help domestic flat steel players overcome challenges posed by a weak domestic demand.

Additionally, the extension of minimum import price (MIP) on a trimmed list of steel products for two months will benefit the industry; especially long steel players which do not attract any ADD as of now.

Jayanta Roy, Senior Vice-President and Co-Head, Corporate Sector Ratings, ICRA said, "India's steel imports, which fell by around 29% year-on-year (YoY) in the April to June quarter of the current financial year largely due to MIP and Safeguard Duty (SGD), are expected to reduce further in the coming months, thus helping domestic mills regain lost market share".

Domestic hot-rolled coil (HRC) prices witnessed a drop in July 2016 on account of weak demand and subdued Chinese export prices. However, after the imposition of ADD in August 2016, HRC prices have increased by Rs. 1,500/MT, and are expected to remain buoyant in the near term as domestic HRC prices are still cheaper than landed cost of Chinese import offers by about 13%.

Nevertheless, in ICRA's opinion, given the marginal demand growth of 0.4% in Q1 FY2017 and an overcapacity-related concern in the domestic market, steel prices are unlikely to increase significantly from the current levels unless demand growth strengthens.

In such a scenario, an expected revival in rural demand following a normal monsoon after two years, and the likely rise in discretionary consumption after the 7th Pay Commission payouts, remain critical for an improvement in domestic steel consumption in the second half of FY2017.

Domestic steel prices have increased in the second week of August 2016 post the imposition of ADD. However, given the weak domestic demand, the extent of increase has been only around 5% from the July 2016 levels, and currently remains lower than the previous peak levels achieved towards the end of May 2016.

"Steel demand in India remains soft during the second quarter because of lower construction activities during monsoon. This, coupled with the higher coal costs, and a limited price rise off late, will keep the operating profit margins of domestic steel companies under pressure in the current quarter", Roy added.
Also, debt coverage indicators of the leading four domestic steel players (accounting for around 45% of the current domestic capacity) have deteriorated significantly in the last few years, with the total debt to operating profit and interest coverage ratios falling to 9.6 times and 1.3 time only in FY2016.

The situation in case of mid-sized steel players is even more worrying. Given the significantly high debt levels contracted by these companies in the last few years, ICRA expects debt protection metrics of steel players to remain depressed in the near term.

Source : auto.economictimes.indiatimes.com​