The government’s target achievement and financial disbursements towards key projects such as Housing for All and infrastructure projects (Bharatmala, Industrial corridors, etc.) would be key monitorables from steel demand growth perspective.
•In 2017, global demand increased by 7 percent on-year, primarily on back of anti-expectations growth in demand from China (12.4 percent yoy). The global demand growth ex China was a meagre 2.6 percent. Going ahead, we expect China’s demand growth to slow down to 2-4 percent with the govt. expected to withdraw few incentive schemes. However, the progress of One Belt One Road remains a key monitorable in near term.
•On the domestic front, demand is estimated to rise at 4.5-5.5 percent on-year in 2017-18 and inch up further to 5-6 percent in 2018-19 primarily led by acceleration in execution of affordable housing and infrastructure (railways and urban infrastructure, metros) projects coupled with robust growth in consumption sectors of Auto and Consumer Durables.
•The current fiscal 2017-18 is expected to witness a sharp price uptick of ~14 percent y-o-y (HRC) supported by positive global sentiments and high raw material prices. In fiscal 2018-19, domestic steel prices to remain range-bound with some downward pressure led by pressure on global steel prices and some softening of input prices.
•After witnessing a significant expansion in 2016-17, profitability is expected to be under pressure in the current fiscal primarily on back of high iron ore and coking coal prices. Going ahead we foresee profitability to stay healthy and inch up marginally led by healthy domestic volume growth and expectations of lower raw material prices especially iron ore.
•Government’s target achievement and financial disbursements towards key projects such as Housing for All and infrastructure projects (Bharatmala, Industrial corridors, etc.) would be key monitorables from steel demand growth perspective.
•Further progress on first list of steel companies (with total loan default of around 1.4 lakh crore) referred to NCLT would also re-define the industry’s supply structure and potential capacity expansions.
•Domestic primary aluminium demand is expected to continue its upward trajectory in 2017-18 growing at ~5 percent primarily on back of government’s thrust on augmenting power transmission and distribution network coupled with rise in automotive production. In 2018-19, the power cable sector and automotive sector are anticipated to grow at ~12 percent and 10 percent respectively, leading to an overall aluminium demand growth of 6-6.5 percent•After experiencing some pressure in the past, profitability for domestic manufacturers is expected to zoom by 300-400bps in 2017-18 largely on back of 7-8 percent rise in realizations and modest volume growth.
Going forward, we expect profitability to largely remain range bound in 2018-19 with some cost pressure kicking in.
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