India’s steel demand is expected to contract in FY21, Fitch Ratings said on Friday.
However, the ratings agency said that volumes should continue to improve over the next few quarters, led by rural consumption and government spending on infrastructure, and lead to better margins due to operating leverage.
“Higher prices supported by the price rebound in China should also drive margins in 2QFY21 and beyond. Hot-rolled steel sheet prices in China have improved by around $100/metric tonne (mt) since April 2020, and Indian prices have started to tick up since late-July, with a lag,” said a statement by Fitch Ratings.
As per the statement, the EBITDA of Indian steelmakers JSW Steel and Tata Steel should improve from 2QFY21 driven by higher volumes and wide margins.
“EBITDA should improve for Indian steelmakers JSW Steel Limited and Tata Steel Limited from the second quarter of the financial year ending March 2021 driven by higher volumes and wide margins, after a sharp fall in earnings in 1QFY21,” the statement said.
“The EBITDA drop was less than expected as steelmakers partly offset the sharp demand contraction in India with higher exports. However, we expect leverage to remain higher than is consistent with the ratings for the two companies in FY21. We forecast a sharp leverage decline in FY22 but demand-side risks remain, albeit receding,” it added.
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