CARE Ratings in a recent report said that India’s domestic steel manufacturing capacity has grown at a very slow pace in the recent years from 138 million as of March 2017 to 144 million tonnes as of March 2021. During FY22 to FY25, a total crude steel capacity of about 25 million tonnes is likely to get added out of which only 7-8 million tonnes is coming on stream during FY22, while remaining capacity will take another 2-3 years to get commissioned.On the other hand, after a severely impacted year CY2020 which saw steel consumption falling to 89.3 million tonnes, India’s steel consumption is expected to jump by nearly 17% to about 104 million tonnes in CY2021 and 111 million tonnes in CY2022 on the back government push on infrastructure and better demand from construction, engineering & industrials, and automotive sector. Domestic steel consumption has already grown to 66 million tonnes in April-November 2021 from 55 million tonnes in April-November 2020. The domestic HRC steel prices continue to remain elevated above INR 60,000 per tonne on the back of healthier domestic demand and surge in coking coal prices thereby evading the discount vis-à-vis global steel prices. With expectations of improved demand conditions in seasonally better second half of ongoing fiscal and limited scope for increase in supplies, it is unlikely that there will be any significant fall in domestic steel prices in near term beyond any possible impact of cooling down of coking coal prices. Going forward, the domestic prices and spreads shall, inter alia, depend on movement in raw material prices especially the coking coal, CareEdge expects domestic HRC steel prices to remain in the range of INR 55,000 to INR 65,000 per tonne in the near term.Major listed domestic steel players have been earning healthy spreads leading to combined EBIDTA per tonne of nearly INR 25000 on rising volumes amidst recovery in steel consumption over the last few quarters. CARE Ratings believes that there are no immediate signs of abatement of steel up cycle and therefore industry players shall continue to earn healthy spreads. Operating margins despite the likely moderation from peak levels are expected to remain in healthy range of INR 15,000 to INR 20,000 per tonne over next few quarters with a bias towards the upper end of the range.