Moderate Growth for MSMEs in Steel Sector in FY25

New Delhi, Aug 23 (KNN) In a significant shift from the robust growth seen in recent years, the micro, small and medium enterprises (MSMEs) in India's steel sector are expected to experience a more modest expansion in the financial year 2025 (FY25), according to industry analysts.

The projected moderation is primarily attributed to a slowdown in spending growth across core infrastructure ministries, including railways, road, rural and urban development, power, renewable energy, and civil aviation. Growth rates are anticipated to decline from 15.1 per cent in FY24 to 8.4 per cent in FY25, based on budget estimates and revised figures.

Despite this deceleration, experts emphasize that the growth outlook remains positive, surpassing decadal averages. The sector is expected to continue benefiting from steady demand in infrastructure and construction segments.

India's steel MSME landscape is dominated by producers of long-steel products such as reinforcing bars and wire rods. These manufacturers typically employ induction-based furnaces, utilising steel scrap and sponge iron as raw materials, or engage in the re-rolling of billets.

Recent data from the first quarter of FY25 shows encouraging signs, with long steel demand reaching approximately 19.1 million tonnes (mt), marking a 10.1 per cent year-on-year increase.

CRISIL Market Intelligence & Analytics projects long steel demand to grow by 6-8 per cent in FY25 and maintain this trajectory through FY29.

Production figures mirror this upward trend, with long steel output rising 9.8 per cent year-on-year in Q1. Notably, medium and small steel mills accounted for 71.3 per cent of the total 19.3 mt finished steel production, underscoring their significant role in the industry.

The sector's resilience is further evidenced by the expansion and integration efforts of several small mills, with some outgrowing their MSME classification.

This evolution, coupled with sustained domestic demand and favourable raw material prices, has contributed to positive margins and high utilisation levels.

However, the industry faces potential headwinds. A recent Supreme Court ruling affirming states' authority to impose additional taxes on minerals may lead to increased iron ore prices. Jharkhand has already passed a bill levying a Rs 100 per tonne tax on iron ore, which could raise costs for mills by 2-3 per cent.

As steel prices are expected to remain soft in FY25, MSMEs may experience margin pressure. On a positive note, decreasing price volatility should provide steel re-rollers and traders with improved margin visibility.

In conclusion, while the steel MSME sector in India is poised for continued growth, it must navigate a complex landscape of moderating expansion, evolving regulatory environments, and potential cost pressures in the coming financial year.

(KNN Bureau)