Steel Capacity Utilization to Drop Further
Increase in the number of secondary steel units, despite production of the alloy remaining stagnant, is leading to lower capacity utilization in the domestic steel industry. This is despite the long-term steel demand scenario remaining positive. Capacity utilization in the domestic steel industry has declined to 77 per cent in FY20 from 88 per cent in FY11. The utilization levels have been gradually sliding and, in fact, are expected to decline further to 74-75 per cent in the current fiscal year. Fitch Ratings expects steel demand to fall by around 10 per cent in FY21. Steel’s exposure to real estate is lower than cement, with sectors other than construction and infrastructure accounting for around 40 per cent of the overall demand. Moderation in demand growth along with steady capacity additions to the tune of 60-65 million tonnes over the last decade (2010-2020) led to a gradual fall in utilization levels in the sector. Operating levels are expected to fall to 74-75 per cent in the current fiscal. This is just above the historic lows seen in FY16, as per CRISIL Research.
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