An overcapacity situation looms large on the Indian steel
sector with about 25 million tonnes of new capacity likely to be commissioned
in the next 18-24 months outstripping the growth in demand in medium term,
rating agency ICRA said.
“Almost 25 million tonnes of new capacity, which is about 30 per cent of
the country's current production capacity, is expected to be commissioned in
the next 18-24 months,” ICRA said in a report.
The capacity addition rate is likely to outpace domestic demand growth in the
medium-term, it said, adding that as a result, margins of large players would
be adversely affected.
The demand had been growing in double digits before the global crisis, but
slowed down significantly in 2008. In the last two years, the growth rate was
hovering between 6-8 per cent.
ICRA said the consumption was expected to witness some moderation going
forward, given the continuing slowdown in demand from key consuming sectors
like construction, capital goods and automobiles.
“Thus, the domestic steel industry is likely to face overcapacity in the
medium-term, which in turn may push up domestic competition as well as exports,
making India a net exporter of steel,” the report said.
ICRA said overcapacity, waning demand and higher capital charges for
commissioning large projects are likely to affect the margins of the steel
producers adversely in the near to medium-term.
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