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Gloomy Chinese economy putting pressure on Indian steel makers' profit margins
Posted By : Prerna Mishra
SME News, Tuesday, Oct 30, 2012 17:37:40 PM IST
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NEW DELHI: The ongoing fiscal crisis in advanced economies is not only strengthening the signs of late recovery in global markets but also majorly impacting the profit margins of various sectors like engineering, apparel, auto, IT and steel. Besides global economy downturn, slowdown in Chinese economic growth is also hitting the profit margins of Indian steel makers.
A report released by foreign brokerage Credit Suisse says that Indian steel sector should be prepared for more pain ahead as there are signs of pressure on profit margins from all sides.
The report, penned down by Credit Suisse analysts Neelkanth Mishra and Ishan Mahajan, highlights that the profits of steelmakers consists of melting and mining margins, both of which move relatively independently.
However, a remarkable increase had been witnessed in mining as well as smelting operating profits in the past eight years, but uncertain global economy conditions continuously impacting both smelting and mining profits. Minimalistic chances are seen for decrease in the prices of iron ore and coking coal.
The global meltdown in steel demand is mainly attributed to Chinese slowdown and the Europe debt crisis. The demand for steel is highly hit by economic slowdown in China, the world's top steel producer.
For this year, the World Steel Association has also reduced its prediction of Chinese steel demand from 4 per cent to mere 2.5 per cent.
Over the past few weeks, the prominent international bodies including the Asian Development Bank (ADB) and the World Bank have slashed their outlook for economic growth in China.
