CareEdge Research estimates that India's steel output will grow by 4-7% to 123-127 Mt in FY24.
Domestic consumption growth is also expected to be strong at 8- 10% in FY24, driven by higher infrastructure spending, a surge in real estate and construction transactions, and strong car sales.
As India enters its pre-election year in 2023, the government is likely to increase investments both at the state and at the central level. This includes a 33% increase in budgetary capital spending to Rs. 10 crores for infrastructure, capital cost of Rs. 2.4 million crores for Indian Railways and the announcement of 100 transport infrastructure projects. These initiatives bode well for domestic demand.
In addition, a surge in construction and real estate activity is boosting demand for steel products. The automotive sector, which saw growth of 21% year-on-year in the 11 months of FY 2023, also points to growing demand for steel.
According to CareEdge Research, the 11 months of FY 23 (April 2022) - February 2023) domestic production and consumption of finished steel in India increased by 6.2% and 11.6% respectively year on year.
However, steel exports fell sharply by 52% year on year due to weak global demand and the imposition of a 15% export duty on steel products from May to November 2022.
"Imports increased by 29.5% year on year over this period, and India for the first time in three years became a net importer of steel between October 2022 and February 2023,” the report said.
Steel companies in India recorded a decrease in EBITDA margins for the quarter ended December 2022, compared to the same period of last year. This was primarily due to rising coking coal prices and low steel prices.
“Growth in domestic demand for steel is expected to be stable at 8-10% in FY24. This will be driven by a 33% year-over-year increase in public investment in infrastructure development, as well as growth in real estate and construction,” said Tanvi Shah, director of CareEdge Advisory & Research.
“C on the other hand, exports have consistently increased since December 2022 after the removal of the export duty on steel products and iron pellets. This is expected to boost export volumes in FY24,” she added.
However, steel operating margins are expected to remain under pressure in FY24 due to higher production costs for iron ore and coking coal. Global steel prices are expected to remain range-bound for the foreseeable future.
