Indian steel prices are expected to remain under pressure in the next fiscal year (2025-26), as local mills struggle with increasing imports from China and the rising risks of aggressive tariff policies, according to a report released by Fitch Ratings on March 20.
Fitch has downgraded the potential for ratings upgrades for India's top steel companies, including JSW Steel and Tata Steel. The agency highlighted that JSW Steel Limited currently holds a "BB" rating with a stable outlook, while Tata Steel Limited has a "BBB-" rating with a negative outlook.
The report notes that steelmakers in China have been facing profitability challenges due to a prolonged property downturn that has led to decreased consumption. This has caused higher steel exports to countries like India. Consequently, Indian mills are contending with a surge in discounted steel imports from China, South Korea, and Japan, with steel imports reaching record levels in the first 10 months of the current fiscal year. Prices have even dropped to their lowest levels in over three years in August 2024.
In addition, the US's 25% tariffs on steel and aluminum imports have sparked retaliatory actions from major trading partners. While Fitch believes the tariffs will have a "minimal direct impact" on Indian companies, there are concerns about the redirection of steel imports from these countries into India, which could further pressure domestic prices. Notably, Japan and South Korea contribute to 15% of total US steel imports, potentially affecting India's steel market.
Fitch expects margins for both JSW Steel and Tata Steel to improve in the coming year, bolstered by higher domestic demand, lower raw material costs, and China's stimulus measures, which are expected to reduce imports into India. However, the rating agency predicts that the margins will remain below average, even with the possibility of a 12% safeguard duty being levied. Lower margins pose a risk to the companies' credit ratings, especially for Tata Steel, which faces additional risks from its European operations restructuring and mining taxes imposed by Indian states.
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