India Ratings and Research has revised its outlook on the steel sector to stable for FY22 from negative. The agency expects FY22 steel volumes to improve year on year and compensate for a likely moderation in per tonne margins, as steel prices gradually moderate over FY22 from the high levels witnessed over 2HFY21. Both demand and supply are likely to be strong and recover from the slowdown in FY20 and the COVID-19 led demand and supply disruptions in FY21. However, spreads are likely to moderate over FY22, as steel prices face headwinds with limited correction in raw material prices.
The agency expects domestic iron ore prices to gradually correct in FY22, as iron ore supply improves, although remaining elevated till the domestic iron ore output increases to FY20 levels. Additionally, once the Odisha iron ore mines ramp-up, the lessees of auctioned mines, given high premiums bid, are likely to try and pass on high premiums to customers, thus providing a further fillip to the prices. FY22 coking coal prices are likely to be higher than FY21 levels but unlikely to be at pre-COVID19 levels. However, the prices could remain volatile for certain months, because of the concentrated nature of the coking coal mining sector and the risk of a natural calamity in Australia.
Ind-Ra expects long products demand growth to be sharp in FY22 (FY21(projection): negative 15%), supported by a demand push from the government-led infrastructure investments in affordable housing, railways and rural electrification and road networks and due to a lower base of FY21. Furthermore, the government allowing secondary producers to supply rebars for infrastructure projects shall improve sector competitiveness and pricing. Similarly, demand for flat products is likely to grow sharply in FY22 (FY21 (projection): negative 7.5%), due to the lower base effect of FY21 because of COVID-19, in addition to the government infrastructure investment and the recovering auto demand.
Source: STEELGURU
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