Domestic Steel Capacity Utilization Faces Historic Decline Amid Import Pressures

For the first time in four years, India's domestic steel industry is set to see capacity utilization fall below 80% due to cheap imports, warns ICRA. Planned capacity expansions might stall unless domestic steel companies' earnings improve. Previous high utilization, investment, and leverage levels may not sustain.

The domestic steel industry's capacity utilization in India is forecasted to dip below 80% for the first time in four years, primarily due to the impact of inexpensive imports eroding market share. This warning comes from rating agency ICRA, which notes that this downturn could threaten new capacity expansion initiatives unless financial performance improves.

The industry previously boasted impressive achievements, maintaining high utilization rates, significant investments, and manageable leverage over a three-year span. However, ICRA's latest analysis indicates that these conditions are under threat. The penetration of cheaper imports has shifted the outlook, challenging the sustainability of these favorable conditions.

Girishkumar Kadam, Senior Vice-President and Group Head at ICRA, highlights the expectation that capacity utilization rates will fall from 85% in 2023-24 to an anticipated 78% this fiscal year. This marks a significant low, influenced by global trade dynamics and reduced tariff protections. The changing trade flows, especially from underperforming economies like China, are redirecting steel exports to burgeoning markets such as India.

Currently, aside from a 7.5% basic customs duty, earlier protective tariffs such as anti-dumping and safeguard duties, have lapsed, simplifying market access for foreign suppliers.

(With inputs from agencies.)