The capacity utilisation of the Indian steel industry in the fiscal year 2024-25 is poised to slip below 80 percent for the first time in four years as cheap imports nibble at market shares, Indian rating agency ICRA said in in a sectoral report on Friday, December 13.
The credit rating agency noted that the fresh upcoming capacity addition plan of 90-95 million mt per year, entailing investments of $45-50 billion, could be at risk of a slowdown unless earnings of domestic steel mills inch up from prevailing levels.
ICRA said that the domestic steel industry witnessed an all-time-high capacity addition of 18.2 million mt per year last fiscal year, and in the current year another 15.3 million mt per year of new capacity is lined up for commissioning.
“However, while domestic steel demand is expected to maintain its solid growth track record of 10-11 percent in 2024-25, domestic mills are struggling to protect their market share from cheaper imports,” ICRA said in the report.
“This is reflected by the much lower five percent growth in domestic finished steel production that we expect in the current fiscal. Coupled with the record ongoing expansion plans, the industry’s capacity utilisation rates are expected to slip from 85 percent in 2023-24 to an estimated 78 percent in the current fiscal, the lowest we have seen in the last four years,” it said.
Following the post-Covid metals rally, the domestic steel industry was able to achieve the “impossible trinity” of maintaining above 80 percent capacity utilisation rates, a strong investment pipeline, and comfortable leverage levels for three consecutive years between 2021-22 and 2023-24.
But ICRA said this trinity is unlikely to be sustained going forward as the recent surge in cheap imports has nibbled at the market share of domestic steel companies, leading to pressure on industry profit margins, lowered capacity utilisation rates, and steadily increasing leverage levels to support ongoing growth plans.
Major steel producers that are on an expansion spree have been flagging the issue of cheap imports for a while. Trade flows have been redirected to high-growth markets like India in the wake of the sub-par economic growth outlook in China, along with other leading producing and consuming hubs.
China accounted for the highest share of 30 percent of the steel imports to India in the first seven months of 2024-25, while 59 percent of the imports were from free trade agreement (FTA) countries like Japan, South Korea, and Vietnam, which have duty-free access to India.
Apart from the 7.5 percent basic customs duty, most of the earlier tariff protection measures implemented during the 2015-2016 metals meltdown, like antidumping duty, safeguard duty, and minimum import price, have expired.
The ICRA report highlights that domestic hot rolled coil (HRC) prices have generally been trading at a premium to the landed cost of cheaper imports for most of the current fiscal year, keeping domestic steel mills on tenterhooks.
By the end of November 2024, domestic HRC prices were trading at a premium of $12-16/mt compared to the landed costs of imports from China and Japan, indicating that import pressures are unlikely to alleviate materially in the coming months unless there is a meaningful recovery in international steel prices.
According to ICRA, India’s finished steel imports are expected to corner about 7.0-7.5 percent of the domestic market share in 2024-2025, the highest level recorded in the last six years.
“Moreover, with export demand remaining lacklustre in 2024-25, net finished steel imports (indicating finished steel imports less exports) are poised to spike to levels last witnessed during the 2015-16 metals meltdown,” the report said.