ICRA Foresees Notable Margin Slip for Steel Firms in FY2023

SEATTLE (Scrap Monster): ICRA- the rating agency said that steel companies are likely to witness significant decline in earnings over the next one-year period. The industry faces headwinds from export duty on finished steel, unprecedented raw material and energy costs and muted domestic demand. The agency revised steel sector’s outlook from positive to stable.

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According to ICRA, the steel industry is seen on its way to an accelerated mean reversion. The challenges to the sector will be further accentuated by high inflation and rate hikes by central banks. The agency kept the domestic steel demand growth forecast for FY2023 unchanged at 7-8%. However, it revised downwards the overall operating profits for the fiscal significantly by around 30%, compared with the earlier estimate.

Jayanta Roy, senior vice president & group head, corporate sector ratings at ICRA noted that the steady rise in coking coal prices had started to eat into steelmakers’ margins, even before the announcement of export duty was made. The coking coal consumption costs are poised to surge by around 30-35% over the prior quarter. It must be noted that domestic prices of hot-rolled coils have corrected by around 9% since the imposition of the 15% export duty on various finished steel products.