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Icra in its latest report has said that the primary steel industry is likely to experience a challenging environment during the second half of current financial year (H2FY24) amid increased input cost and weakening steel prices. It stated the domestic hot rolled coil (HRC) prices have corrected by 6.7 per cent since early October 2023, while the rebar prices witnessed a fall of 4.7 per cent in the same period.

Further, it said the overall industry's operating profit margins in H2 FY24 are expected to be lower compared to H1 FY2024, largely driven by weaker profitability from the blast furnace operators. Besides, it said coupled with the higher resilience of long steel prices, the operating profit margins of secondary steelmakers are projected to be higher by 75 basis points in H2 over H1 of FY24, even as primary producers, which are primarily blast furnace players, are slated to witness a drop in operating margins by 135 basis points over the same period. Primary steel players manufacture steel through blast furnace route and the secondary industry uses electric arc furnaces and induction furnaces to manufacture steel.

Jayanta Roy, Senior Vice-President and Group Head, Corporate Sector Ratings, Icra said due to supply-related constraints in Australia, spot premium hard coking coal cargoes unexpectedly rallied up by 50-55 per cent in a short span of three months, reaching an interim high of USD 363/MT (metric tonne fob Australia) in mid-October 2023. He added the blast furnace operators have been diversifying their coal sourcing by progressively reducing the share of coking coal imports from Australia from 71 per cent in FY22 to 52 per cent in H1 FY24.