The sharp correction in domestic steel prices following the
imposition of export duty by the government, together with falling exports,
will lead to a 2-4 per cent fall in industry revenue in 2022-23 (FY23).
However, micro, small, and medium enterprises (MSMEs), with higher exposure to
long steel, will grow 5-10 per cent, CRISIL Research shows.
Export
duty was imposed owing to a surge in domestic steel prices over January-May
this year. The move led to a swift 25 per cent correction in the price of flat
steel — which accounts for almost 80 per cent of finished steel exports and is
dominated by large integrated steel players — from its April peak. Long steel
saw a limited correction.
We
expect flat-steel prices to correct by over 10 per cent in FY23, even as long-steel
prices remain largely resilient. In fact, long-steel prices of primary players
are 6-8 per cent higher year on year (YoY) for August 2022. Prices of secondary
players’ are even higher because of the rising price of thermal coal, a key
input for them.
Rising
input prices will constrain margins across the board. Integrated players, whose
margin was 30 per cent in FY22, will see a margin correction of 400-600 basis
points (bps) YoY this fiscal. Secondary players, with margins typically at 9-10
per cent, will see a contraction of 150-200 bps.
That
said, lower dependence on exports and healthy demand growth from the infra and
housing segment will drive volume growth for secondary players, cushioning the
margin fall.