On the back of the government's infrastructure-led growth model, Indian steel demand increased by 11.9% on-year during the first eight months of the current fiscal year ending 31 March 2023 (FY23). The trend looks poised to close the year with a growth of around 8%, which is at the upper end of the 7-8% growth forecast for FY23, says ICRA Ratings.

However, Indian steel companies face a bumpier road ahead as the external environment becomes more challenging due to elevated inflation/energy prices and rising interest rates, ICRA adds. Given the expectation of a slowdown in the pace of economic activity over the next few quarters, domestic steel demand growth is likely to moderate to 6-7% in FY24, Kallanish notes.

"Fresh steel capacities accumulating to 21-22 million tonne/year are lined up for commissioning in FY23-24," says ICRA senior vice president Jayanta Roy. "Given the prospect of a moderation in domestic steel demand growth and a lacklustre export environment, fresh supplies are likely to outrun incremental demand, which we believe will pull down the industry’s capacity utilisation levels to 78% in FY24 from 80% in FY22. As the industry’s earnings become less attractive and leverage levels start to inch up, large aspirational Capex programs that have not received financial commitment as yet could get deferred."

According to the rating agency, Indian finished steel exports are expected to gradually increase from their November lows. However, due to an unfavourable external demand environment, they are unlikely to go back to levels seen in FY21/ FY22 anytime soon.

"On the other hand, given the limited growth opportunities in key global steel-producing hubs of China, Japan, South Korea, CIS, Europe, and the USA, finished steel exports to India have been steadily increasing … resulting in India becoming a net finished steel importer in two back-to-back months during October-November 2022," says ICRA. "Global steel trade flows, especially from the FTA countries (Japan and South Korea), Russia, and China, can be redirected in greater volumes to growing markets like India, keeping imports at an elevated level in FY24 as well."

In 2022, the world's demand for steel is predicted to decline 2.3% on-year for the first time in seven years, according to the World Steel Association's (WSA) recent forecast. In 2023, the growth rate is predicted to stay at an anaemic 1%.

This, however, does not take into account any further large Covid outbreaks in the near term, even though a sharp rise in new infections has been witnessed in recent weeks, ICRA concludes.