Steel-makers are in for better times from the second half of the current fiscal as lower input cost and robust domestic demand will ease their margin pressure and lift operating margins to over 25 per cent, as per a report.
The industry was hit by high input costs in the first quarter and is still under pressure in the ongoing second quarter, the rating agency said in the report.As a result, their operating margins of primary steelmakers are likely to fall to 14-16 per cent in the first half of this fiscal -- massively down from 30 per cent last fiscal, which was a decadal best -- due to high input costs, lower realisations and imposition of export duty on finished steel products, among other reasons, Crisil added.
However, from the second half onwards the margin pressure is expected to ease due to lower production costs because of declining raw material prices and steady realisations backed by robust domestic demand, lifting it above 25 per cent, the report said. This will have the full-year operating margin at a robust 22-24 per cent, which will still be 700-800 bps lower from the last year, but higher than the pre-pandemic average of 20 per cent logged between fiscals 2017 and 2020.
The first quarter saw a decline in steel prices with high input costs. Though input prices have corrected, their impact will be felt only towards the end of the second quarter, leading to a subdued first half.