India Ratings Maintains Neutral Outlook for Steel Sector in FY25

India Ratings and Research (Ind-Ra), which projects 9%–12% annual growth in demand, has maintained a neutral outlook for the steel industry for FY25. Consistent expansion in end-user industries such as infrastructure and automotive supports this expectation. Gross fixed capital formation, which increased by 10.2% in FY24 and is predicted to increase by 8.5% in FY25, is directly related to demand. The demand for steel increased by 13.8% in FY24, bringing the five-year CAGR to 8%.

“Although the worldwide oversupply situation may keep the import danger high, we expect the domestic demand-supply environment to remain balanced, with increase in demand corresponding with capacity additions across participants. Prices for finished goods and raw materials are predicted to be range-bound in response to a modest recovery in global demand. Due to increased profitability and better operating cash flows in the face of debt-driven capital expenditures, domestic players could expect steady credit metrics, according to Rohit Sadaka, Director and Head of Materials and Diversified Industrials, Ind-Ra.

The European Union (EU) and China’s shift to low-carbon programmes are expected to decrease demand for steel, while growth in emerging economies like India will support a stable global steel market.

Ind-Ra anticipates range-bound global steel pricing in FY25. Cheap imports into India are not seen as a major danger by Ind-Ra because China, the world’s top steel producer, is likely to stick to its supply discipline policy and likely reduce output until 2024. Global macrotrends are expected to continue to provide challenges for the industry, and Ind-Ra believes that stricter enforcement of environmental protection laws will be a crucial metric to watch.

Despite capital expenditures for the expansion of capacity scheduled for FY25–FY26, Ind-Ra has kept a stable rating outlook on its rated businesses for FY25, based on the anticipation of an improvement in the credit profile driven by improved profitability and a stable interest rate regime. 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.

Large and mid-sized integrated players’ liquidity is probably going to be sufficient in FY25 thanks to improvements in cash flow from operations in prior years, which have increased their financial flexibility. This will maintain the credit metrics stable and support the debt-funded capex in FY25–FY26, together with the beneficial adjustments in working capital.

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