The domestic steel industry is witnessing early green shoots of recovery from the second quarter of ongoing fiscal, rating agency Icra said.
The outbreak of COVID-19 pandemic and the subsequent nationwide lockdown had severely affected demand and production of steel in the country, leading to rise of inventory levels.
Due to the poor market conditions, steel players were forced to reduce their capacity utilisation and look for export markets to adjust their produce.
However, "the domestic steel industry is witnessing early green shoots of recovery from Q2 FY2021 (second quarter of financial year 20-21), supported by easing of mobility restrictions and a gradual improvement in the domestic demand environment," Icra said in a report.
"Consequently, the performance of steel mills, especially blast furnace players, is expected to register a healthy rebound in Q2, supported by rising capacity utilisation rates, successive steel prices hikes, and tepid input costs," it added.
Towards the later part of July-September FY21, the domestic steel industry surpassed the average capacity utilisation level of 77 per cent, Icra said.
However, the overall financial performance for FY21 is likely to remain subdued given the pandemic related disruptions suffered in the early part of the fiscal.
The industry's capacity utilisation rates have steadily inched up from the lows of 27 per cent in April 2020 to 78 per cent in August 2020, which suggests that the operating environment is improving, Icra Senior Vice-President & Group Head, Corporate Sector Ratings, Jayanta Roy said.
Besides, steelmakers have announced multiple price hikes in recent months, whereas the input costs are likely to trend lower, largely due to tepid seaborne coking coal prices, he said.
"This would support a recovery in mill margins from the Q1 (first quarter) lows. However, we are likely to see an uneven pace of recovery between the primary and secondary steel producers, with the former managing to increase market share, helping them operate at higher asset utilisation rates than the secondary mills," Roy added.