Steel Sector (Core)

Recently, growth in Steel production has been majorly influenced by a favorable base effect, the Government imposing anti-dumping duties on Chinese imports is also an influencing factor

Government expenditure has been a primary driver of steel production in India and the massive resource mobilization of Rs.2.2 lakh crore earmarked in Budget FY2017 for infrastructure development is a case in point here. Even though the sector has been negatively impacted by Chinese dumping of high and low grade steel into Indian markets, recovery of sorts has been achieved through robust growth in road development projects, railway capital expenditure plan and power generation. Recently, growth in Steel production has been majorly influenced by a favorable base effect, the Government imposing anti-dumping duties on Chinese imports is also an influencing factor.

Acuité estimates that the sector will record positive growth in the overall financial year. However, the next two quarters will remain subdued resulting in a slower than expected recovery in China (and therefore highly competitive import substitutes).

Recently, growth in Steel production has been majorly influenced by a favorable base effect, the Government imposing anti-dumping duties on Chinese imports is also an influencing factor

Also, large share of infrastructure in stressed assets pool (and therefore lower credit off take to the sector) is a major constraint. Furthermore, regulatory uncertainties in mining have affected the steel sector adversely. Numerous critical mines have remained closed for varying periods causing immense stress on operations.

Principal factors influencing the category  

Government Expenditure
Demand Supply Equilibrium (Import Substitution)
Consumer Sentiment/ Inflationary Situation
Economic Growth & Outlook

WTO mandates are yet another reason for the helplessness in dealing with cheap imports. Resultantly, oversupply (correlated to Capacity Utilization levels) is one of the key considerations while assessing the sector. Acuité believes that the sector will continue to contribute around 2% to the country’s GDP over the next two decades.

Sector contribution in Steel consumption

Sector

2015-16

2020-2021

Construction 45.82% 43.62%
Automobile 8.69% 9.95%
Transport equipment 1.40% 1.33%
Industrial machinery 21.57% 23.60%
Others 21.23% 20.20%
Agro instrument 1.30% 1.30%
Total input 100.00 100.00

Sector's weightage on core IIP index 17.60%
Sector's weightage on overall IIP index 6.70%
Registered entities 1267
Sector's contribution on GDP 3.00%
Global market share 6.00%
Position in global market 3rd

YR13 YR14 YR15 YR16 Trend
Debt to equity ratio 1.95 1.83 2.35 1.91
Interest cover 1.31 0.63 1.94 0.83
Raw material cycle (days) 70.64 57.82 74.63 90.76
Debtor days 54.23 54.47 51.17 56.14
Gross working capital cycle 158.63 166.11 163.67 182.9
Creditor days 90.55 84.78 85.15 97.74
Total income / total assets 1.28 1.36 1.26 1.3

(Updated as on March 15, 2017)