New Delhi: India Ratings on Wednesday said the credit profiles of steel producers reviewed by it are expected to remain stable in 2013 as they will be driven by continued but slow growth in domestic demand.
"The demand for steel from automobile, white goods and capital goods will remain muted throughout 2013, given the continued slowdown of Indian economy. Any prolonged deferral of corporate capex due to prevailing high interest rate could further impede growth in steel demand," it said in its outlook for 2013.
India Ratings, which is a group firm of global rating agency Fitch and had rated 50 Indian firms belonging to the steel sector, also said that "the majority or 92 percent of ratings are on stable outlooks and most of them are below 'IND BBB-', which reflects the inherent risks in the steel sector".
The firms, reviewed by India Ratings include SAIL, Tata Steel and Rashtriya Ispat Nigam.
According to the ratings agency, Tata Steel has negative outlook for 2013 as "profitability pressures for the company will persist, given the challenging short-term outlook for the global steel market."
It further said that though Indian steel producers increased prices by Rs 500-1,000 per tonne in December 2012, India Ratings expects profit margins of the firms in 2013 to remain broadly similar to 2012 levels and a modest recovery in domestic prices.
"The ability to raise steel prices in the Indian market is also limited by the global nature of the market, coupled with oversupply and weak demand in the international market. Imports, though contained to an extent by rupee depreciation, have already touched an all-time high of 10 percent of the total production in 2012," India Ratings said.
Expecting that the Reserve Bank of India would gradually reduce interest rates in 2013, it further said that magnitude of reduction will determine the extent of demand revival from end user industries.
Domestic steel consumption grew by a modest 5.3 percent year-on-year (YoY) during January-November 2012 due to headwinds from the unfavourable macroeconomic environment, it said.
During the same period, imports grew by 24.8 percent (YoY) to 7 million tonnes (MT), while exports increased 15.4 percent (YoY) to 4.3 MT.
Availability of iron ore and its higher prices would continue to adversely impact margins of steel makers having no captive mines, it added.
Besides, the domestic steel industry could face the risk of over capacity in the medium-to-long-term as Indian steel making capacity is slated to cross 100 MT in 2013, it said, adding that most of the steel producers' liquidity will remain stretched through 2013 due to increase in input costs.