Ratings agency Ind-Ra revises FY22 steel sector outlook to stable

NEW DELHI: Ratings agency India Ratings and Research (Ind-Ra) on Tuesday revised its outlook on the domestic steel sector from negative to stable for the fiscal year beginning April 1, 2021.

The agency also expects the prices of iron ore, a raw material used for steel making, to increase in the coming financial year.

In a statement, Ind-Ra said it "has revised its outlook on the steel sector to stable for FY22 (financial year 2021-22) from negative.

"Ind-Ra 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."

In FY22, demand and supply are also expected to be strong and recover from the slowdown in FY20 and the COVID-induced demand and supply disruptions in FY21.

Besides, 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 iron ore mines in Odisha ramp-up their output, 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, it said.

However, the coking coal prices are likely to be higher than FY21 levels but unlikely to be at pre-COVID-19 levels.

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, a major supplier of coking coal, it added.

Furthermore, the government allowing secondary producers to supply rebar for infrastructure projects shall improve sector competitiveness and pricingit noted.