Steelmakers’ Outlook Cautious After Muted Volume Growth In FY19
Muted demand in the auto sector is expected to hurt steelmakers’ volumes, says Edelweiss Research.
Production and volume growth of Tata Steel Ltd. and JSW Steel Ltd. was muted in 2018-19 despite healthy steel demand.
Tata Steel’s volume growth, on a standalone basis, was the slowest in at least four years. The company, however, clocked the highest growth among peers on a consolidated basis aided by its acquisition of Bhushan Steel Ltd. in May 2018.
State-run Steel Authority of India Ltd.’s FY19 production growth was the highest since 2015 owing to capacity ramp up at its new mills, the public sector enterprise said in a release, adding that it has set an ambitious production target of 21 percent for FY20.
Production growth of Sajjan Jindal-led JSW Steel in FY19 was same as it was in the previous fiscal. The capacity, however, is expected to rise after it integrates its latest 1.5-million-tonne acquisition of Monnet Ispat.
Volume Growth Slows Down In FY19
Volume growth of Tata Steel and JSW Steel stagnated in FY19.
In isolation, these numbers may look muted or flattish, but Tata Steel and JSW operated at 95 percent and 90 percent capacity utilisation levels, respectively, in 2017-18. It is difficult to grow production and therefore sales volumes on top of that, explained Jayanta Roy, Senior Vice President, ICRA.
Among the three steelmakers, SAIL clocked the highest sales growth of 5.5 percent. But this too was lower compared to the previous year.
Demand Remains Strong
Steel demand rose 6 percent year-on-year in FY19 to 87.1 million tonne per annum, Morgan Stanley said in its report, adding that it expects the demand to remain robust due to capex recovery and pickup in consumption. The brokerage expects steel demand to grow to 6.7 percent in FY20.
SAIL, which operated at utilisation levels of around 80 percent, has undertaken an aggressive expansion plan to scale up its production capacity from 15.02 MTPA to 21.4 MTPA in 2018.
Outlook Cautious
India’s steel imports in FY19 were at 0.2 million tonne versus net imports of 3 million tonne in FY18.
Edelweiss research, however, expects volume concerns for ferrous companies, particularly in the wake of elevated level of imports in the month of January and muted demand in the auto sector, which contributes 20 percent to the total steel consumption in India.
Agreed, market expert Rakesh Arora. The slowdown in the auto industry is a concern for steel industry, he said, highlighting capacity constraints as the reason behind the organic and inorganic growth of steel companies.
SAIL and JSW Steel, while reducing their volume guidance by 2-3 percent for FY19, had expressed concerns related to growing imports, especially from countries having free trade agreement with India.