Moody’s Paints Bullish Picture of Indian Steel Sector

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Moody’s Investors Service has said India will be the brightest spot for the steel sector over the next 12-18 months, according to a report by the Hindu Business Line.

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Moody’s pointed out that India’s steel consumption was rising at least 5.5%-6% every year, tracking strong GDP growth of 7.3%-7.5%.

It said rated Indian steel producers had only marginal exposure to the U.S. Moody’s has estimated that their indirect exposure may also be limited, given most of their sales were to domestic automotive and manufacturing companies.

In fact, on Tuesday the Indian Steel Ministry, perhaps buoyed by sentiments such as those expressed by Moody’s, issued a statement saying it was hopeful of occupying the second slot in global steel output (after China), while the government has also taken steps to encourage secondary steel producers to boost performance.

According to Moody’s, with minimal new steel capacity expected to be commissioned until 2021 in India, robust steel demand — especially from the construction, infrastructure and automotive sectors — would keep end-product prices high, even as rising costs for key inputs, like coking coal and iron ore, put pressure on profitability.

Moody’s also noted the outlook for the Asian steel industry was stable, reflecting the consideration that the profitability of rated producers will increase moderately over the next 12 months against the backdrop of overall steady regional demand.

The robust steel demand, especially from the domestic construction, infrastructure and automotive sectors would keep end-product prices high, even as rising costs for key inputs, coking coal and iron ore pressure profitability.

The Indian Government believes that, in conjunction with the primary steel sector, the secondary steel sector holds enormous potential for growth and opportunities.

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“Strong performance of the secondary steel sector has added muscle to India’s steel production. Encouraged by the overall potential, the Government of India has taken various initiatives to improve the performance of this sector. Based on the present growth pattern, it is expected that India will rise to the second position after China,” the statement said.

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