Govt spending key for revival of Indian steel sector: Fitch

New Delhi: Spending on infra projects such as housing for all and smart cities is the key for the revival of the Indian steel industry, which faces headwinds like cheap imports, global agency Fitch said.

"Spending by the Indian government on infrastructure will be the catalyst for any meaningful improvement in domestic steel demand. The agency expects India's steel consumption to improve modestly by 7-8 per cent in 2016," the agency said in a report titled '2016 Outlook: Indian Steel Sector'.

The agency projected that high imports and soft steel prices globally in 2016 are likely to result in continuing profitability pressures for the Indian steel producers.

"Their margins are likely to be lower in 2015 and improve marginally in 2016, supported by improving domestic demand and the imposition of safeguard duty on imports on certain steel products for 200 days," it added.

Fitch has a Negative Outlook on the sector, it said.

It expects the leverage of major Indian steel producers to remain high in 2016 and start to decrease meaningfully only by 2017.

"The debt levels of major Indian steel producers increased over the last three years due to capacity expansions. The high debt, along with profitability pressure, is likely to result in deterioration of leverage in 2015," it added.

It also expects global steel prices to remain weak in 2016, driven by weak demand and overcapacity in the industry. Indian steel prices had fallen almost a quarter year-on-year as of end-September 2015 in line with global trends.

A relatively stronger rupee in 2015 to date, significant import increases and weak steel demand affected steel prices and consequently, profitability of steelmakers.

Still, the imposition of a 20 per cent duty on certain steel product imports, effective September 14, has given them some relief, Fitch said.