Arcelor Mittal’s entry through its acquisition of Essar Steel is likely to intensify competition in the domestic steel sector but there is still headroom for steel players to increase capacities with consumption demand tipped to grow at 6% to 7% a year in the long term, India Ratings and Research (Ind-Ra) has said in a recent report. The agency has a stable to negative outlook on the sector with an expectation of higher net leverage in FY20, reduced EBITDA (earnings before interest tax depreciation and amortisation) margins due to lower realisation and higher input costs being faced by domestic players. The second half of the year (H2FY20) is likely to be better than first half (H1FY20) with a recovery in realisations and a simultaneous reduction in raw material prices, mainly those of coking coal, the report said. Ind-Ra's steel portfolio review FY20 highlighted key elements impacting large steel players within the agency’s portfolio such as Tata Steel Limited (TSL), JSW Steel Limited (JSWL), Steel Authority of India Limited (SAIL) and Rashtriya Ispat Nigam Limited (RINL). The agency reviewed its long-term ratings on JSWL, TSL, SAIL and RINL over July 2019-November 2019 and made a peer comparison of the four large industry players. While domestic flat steel products segment is consolidated among top five players TSL, JSW, SAIL, Essar Steel India and Jindal Steel & Power Limited, ArcelorMittal-Nippon Steel India, which acquired Essar Steel through an auction of stressed steel assets, is the latest incumbent to enter the fray. The agency noted there is a high risk of disruption in domestic iron ore supplies in FY21 with several merchant mine leases due to expire by March 2020. “While the government has taken several measures to partially address this, in case of any delay, it is possible that India will transition into being a net importer of iron ore resulting in higher cost curves for domestic players, thereby impacting profitability,” the report said. Ind-Ra also said continued regulatory support is critical to protect local steel players against the threat of imports from non-Free Trade Agreement countries.