Stainless steel demand likely to grow by 9% in next three fiscals

Demand for stainless steel is projected to grow by an average around 9 per cent annually in the next three financial years, which will be double the rate of 4.5 per cent expansion recorded in the past five fiscals, CRISIL Ratings said.

This sharp jump in demand will be driven by increasing adoption of stainless steel in railways — a focus area for government infrastructure spending — and rising application in the automobile and construction sectors.

“Demand from railways is expected to grow more than triple by fiscal 2025 and constitute 20 per cent of incremental demand for the metal over fiscals 2023-2025,” said Ankit Hakhu, Director, CRISIL Ratings.

The amount earmarked for manufacturing railway coaches was doubled to Rs 47,500 crore for the financial year 2023-24 as compared with the previous year, as per the Union Budget 2023-24.

Demand from other major sectors with application of stainless steel, including consumer goods (45 per cent of demand) and process industry (25 per cent), is also expected to grow at around 7-9 per cent over the next 3-5 fiscals, given higher consumer spends and recovery in consumption, the rating agency said.

The demand growth, in turn, will spur capacity additions. There has not been any significant investment in the past three years to boost supply of stainless steel in India.

Given the projections for strong growth in demand, the stainless steel sector is expected to attract a good amount of capital expenditure (capex) in the coming years.

Domestic manufacturers are undertaking capex to add 1 MT of steel melting capacity by fiscal 2024. The industry added 1.3 MT between fiscals 2009 and 2012, post which utilisation and profitability issues led to a phase of stress build-up.

Capex will be supported by two factors. First, balance sheets are strong as no material capacity expansion has taken place in the industry over the past few years. Second, cash accruals will remain healthy as operating margins are expected to be steady, given the conversion nature of business and reducing share of high nickel stainless steel grades in the overall demand mix, said Ankush Tyagi, Associate Director, CRISIL Ratings.

“This will result in lower dependence on debt,” Tyagi said.