Steel Prices Decline Impacting Profit Margins

The fall in steel prices is predicted to affect the profitability of primary steel producers in the domestic market. Despite increased sales volume and reduced cost pressures from lower coking coal prices, operating profit margins are expected to remain at 15-16% this fiscal. Domestic prices are projected to drop 10% on average due to rising imports, especially from China.

The decline in steel prices is set to impact the operating profitability of primary steel producers in the domestic market, according to Crisil Ratings. Despite a rise in sales volume and decreased cost pressures from reduced coking coal prices, the operating profit margin is expected to stay at 15-16% this financial year.

Crisil Ratings Director Ankit Hakhu noted that "Lower realisations and flat operating margins will likely reduce absolute EBITDA for primary steelmakers by 5-7% this fiscal, during a period of significant growth capex." Domestic steel prices are forecasted to drop 10% on average from Rs 57,500 per tonne last fiscal, with an 8% decline already observed in the first half.

While domestic demand remains strong, global steel demand is likely to decrease for the third consecutive fiscal year. This trend is leading to an increase in imports, primarily from China, where demand is subdued, pressurizing realisations.

(With inputs from agencies.)