Capacity utilisation of steel companies to hit 4-year low at 78%: ICRA

The development may delay the proposed investment of $50 billion for additional capacity of 90-95 million tonne per annum, unless earnings of domestic steel mills inch up, said ICRA.The steel sector is unlikely to sustain above 80 per cent capacity utilisation going forward as the recent surge in cheap imports have nibbled at the market share of domestic steel companies, leading to pressure on industry’s profit margins, it said.

GirishkumarKadam, Senior Vice-President & Group Head, Corporate Sector Ratings, ICRA, said the domestic steel industry witnessed an all-time-high capacity addition of 18 mtpa last fiscal, and 15 mtpa of new capacity is lined up for commissioning in this fiscal.

While the domestic steel demand is expected to maintain growth of 11 per cent in FY25, domestic mills are struggling to protect their market share from cheaper imports, he said.The industry’s capacity utilisation rates are expected to slip from 85 per cent last fiscal to 78 per cent in the current fiscal, the lowest registered in the last four years, said ICRA.

At present, apart from the 7.5 per cent basic customs duty, most of the earlier tariff protection measures have expired, giving overseas suppliers easier access to the domestic market.

India’s finished steel imports are expected to corner about 7.0-7.5 per cent of the domestic market share in FY25, the highest level recorded in the last six years.Domestic HRC prices are expected to average lower by about 10 per cent year-on-year in FY25, reaching the lowest levels witnessed since FY21. ICRA has pegged the industry’s operating profits per tonne of steel production at $110-115 a tonne in FY25, trending marginally lower than $127 a tonne registered last fiscal.

As of September-end, the industry’s domestic bank debt per tonne of installed capacity inched higher by 17 per cent to reach $192 a tonne against $164 a tonne in March, 2022.By FY31, domestic mills are targeting to increase the domestic installed capacity by 50 per cent by adding 90-95 mtpa of new capacities with investment of $45-50 billion.