Rating agency ICRA said that 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 to 24 months outstripping the growth in demand in medium term,

ICRA in a report said that “Almost 25 million tonnes of new capacity, which is about 30% of the country’s current production capacity, is expected to be commissioned in the next 18 to 24 months. The capacity addition rate is likely to outpace domestic demand growth in the medium term. As a result, margins of large players would be adversely affected.”

According to the report, growth in steel consumption in India has significantly slowed down to around 2.5%in the first six months of this financial year from around 14.5% in the corresponding period of last year, with project offtake slowing down.

ICRA said the consumption is expected to witness some moderation going forward, given the continuing slowdown in demand from key consuming sectors like construction, capital goods and automobiles.

The report said that “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.”

(Sourced from BL)