Decline in steel prices to impact operating profitability of domestic primary steel producers: Crisil

The drop in the prices of steel will impact the operating profitability of primary steel producers in the domestic market, Crisil Ratings said on Thursday.

Early-stage steel produced from iron ore is referred as primary steel.

Despite an increase in sales volume and lower cost pressures, mainly due to reduced coking coal prices, the operating profit margin will remain at 15-16 per cent in the current financial year, it said.

"Lower realisations and flat operating margin will likely drag absolute Ebitda for primary steelmakers 5-7 per cent lower this fiscal, at a time of substantial growth capex," Crisil Ratings Director Ankit Hakhu said.

Domestic steel prices are likely to drop 10 per cent on average this fiscal from Rs 57,500 per tonne last fiscal. The first half of this fiscal has already seen average domestic steel prices fall eight per cent from last fiscal's average.

While domestic demand is healthy, global steel demand is likely to contract for the third consecutive fiscal. This is resulting in rising imports -- particularly from China, where demand remains muted -- which are pressuring realisations.