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India Ratings expects credit profiles of steel producers to remain stable this year.
It said the World Steel Association had forecasted steel consumption in India to grow at five per cent this year. Steel producers may see a spurt in demand in the medium-term if the Union Government implemented its $1 trillion infrastructure investment plan in a timely manner.
The demand for flat steel from automobile, white goods and the capital goods sectors is likely to remain modest this year, given the continued slow economic growth.
Though Indian steel producers increased prices by Rs 500-1,000 a tonne in December 2012, India Ratings expects profit margins this year to remain broadly similar to 2012 levels. This is due to the persistent high cost of steel production and steel producers' limited ability to pass on higher costs due to subdued demand from end-user industries. The margin pressure will be higher on the producers with no captive raw material linkages.
The cost of funding working capital requirements remains high despite the marginal reduction in repo rate by the Reserve Bank in early 2012. The rating agency expects a gradual reduction in interest rates in 2013, which should provide some relief in interest costs.
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