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India’s steel capacity utilization rate to fall to 78%, the lowest in four years

The Indian Credit Rating Agency (ICRA) has warned that if domestic steel mills fail to increase their earnings, the proposed investment of USD 50 billion to add 90-95 million tons of capacity per year could be delayed.

India’s steel capacity utilization rate to fall to 78%, the lowest in four years

ICRA expects the sector’s capacity utilization rate to fall below 80% for the first time in four years this fiscal year, after cheap imports eroded the domestic steel sector’s market share.

Girishkumar Kadam, Senior Vice President and Group Head of Corporate Sector Ratings at ICRA, stated that the domestic steel sector witnessed an all-time high capacity addition of 18 million tons per year in the previous fiscal year. This fiscal year, 15 million tons of new capacity is planned to be commissioned. However, the increasing market share of cheap imported steel is putting pressure on domestic producers’ profit margins, which may cause capacity utilization rates to remain at lower levels.

Steel demand expected to grow

Although domestic steel demand is projected to grow by 11% in FY2025, domestic manufacturers are struggling to maintain their market share due to the influx of cheaper imported steel. ICRA forecasts the sector’s capacity utilization rate to decline from 85% in the previous fiscal year to 78% in the current fiscal year, marking the lowest level in the past four years.

Domestic steel prices are expected to be 10% lower on an annual basis in FY2025, reaching their lowest levels. ICRA estimates that the sector’s steel production operating profit per ton in FY2025 will be USD 110-115, slightly lower than the USD 127 per ton recorded in the previous fiscal year.

Investment and export expectations

ICRA reported that the domestic steel sector is targeting an investment of USD 45-50 billion to add 90-95 million tons of new capacity annually. However, increasing imports could hinder the timely implementation of these investments due to heightened competition in the domestic market and the pressure on profit margins. Additionally, India’s finished steel imports are expected to account for around 7.0-7.5% of the domestic market in FY2025, the highest in the last six years. These challenges could significantly impact growth and capacity utilization rates in the sector in the coming years.

 

 

 

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