Domestic steel companies are likely to report weak margins in the near-term despite a fall in the raw material prices, rating agency Icra said in a report today.
"Near-term margin outlook for domestic steel companies remains weak, notwithstanding some moderation in raw material prices," it said.
The rating agency also said factors like falling international steel prices, coupled with cheaper imports, would keep prices under check.
"International steel prices have been on a downward journey in the current year so far, reflecting the weakness in major steel consuming regions like China, the US and the euro-zone.
"Consequently, a surge in cheaper imports have exerted significant pressure on domestic steel prices, which are expected to remain under check in the near-term," Icra Senior Vice-President and co-head for corporate sector ratings Jayanta Roy said in the report.
The report also said low availability of iron ore and a depreciating rupee have somewhat offset the easing of prices in coking coal and iron ore prices in the recent past.
"Both limited iron ore availability and a weak rupee offsetting the easing of international coking coal prices, have kept the prices of raw material at relatively elevated levels, despite a fall in domestic iron ore prices in September and October 2012," the report said adding, margins will be under pressure in the near-term.
As per the rating agency, domestic steel consumption grew at only 5.5 per cent in FY2011-12.
"While apparent steel consumption growth has improved somewhat in the current fiscal in contrast to other major macroeconomic indicators remaining weak, most of it has been fuelled by surging imports, which grew by over 40 per cent in the first quarter, keeping domestic production growth at low levels," the report said.
It, however, noted that long-term demand outlook for the domestic industry remained positive and a low interest rate regime along with policy initiatives would be critical for the growth in demand.