Steel Authority of India (SAIL), the country’s second-biggest producer of the metal, may cut output as demand for vehicles and homes slump and commodity prices tumble.
Production of some of the products including hot rolled (HR) coils and long products at SAIL may be cut temporarily, Steel Secretary Pramod Rastogi said at a conference in Hyderabad today.
“Demand for long products and HR coils in India has declined," he said, pointing out that SAIL had cut down the production of HR coils and long products by 37 per cent last year. “Rationalisation is the long-term plan,” he said.
Steel Authority is joining global rivals in slashing output as consumers defer purchases of homes and cars, driving down demand and prices of their products. ArcelorMittal, the world's largest steelmaker, will slash production by more than 30 per cent in the Europe and US. The Luxembourg-based company has forecast earnings will almost halve to $2.5 billion in the fourth quarter.
"The pain in the steel industry is likely to continue,'' said Jayesh Shroff, who helps manage about $6 billion at SBI Asset Management Co. "The demand for the metal will only pick up after economies show signs of recovery.''
Steel Authority shares fell 11.8 per cent to Rs 78.30 at the close of trading on the Bombay Stock Exchange today. The stock has plunged more than 70 per cent this year, compared with a 50 percent drop in the Sensitive Index of the Bombay Stock Exchange.
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The company produced a record 3.5 million metric tonnes of crude steel in the three months ended September 30. Global production and consumption of the metal may slump 5 per cent in 2009, Research & Consulting Group AG said last month.
Profit growth of SAIL will slow in the third quarter as prices decline, Chairman S K Roongta said last month. The company was forced to lower prices by as much as Rs 6,000 ($126) per tonne this month.
The reductions mean that the price of Steel Authority's benchmark hot-rolled products has fallen by more than 10 per cent to about Rs 33,000 a tonne, according to Niraj Shah, an analyst at Centrum Broking.
Tata Steel, India's biggest steelmaker, said last week it will lower production by 30 per cent in Europe. ThyssenKrupp AG, Germany's biggest producer, has said it will temporarily shut plants in December and stop buying slabs, a raw form of steel.
With steel demand on the wane, raw-material suppliers are also scaling back production. Cia. Vale do Rio Doce and Rio Tinto Group, the world's largest iron-ore exporters, will cut output because of reduced demand from China.
Fortescue Metals Group, Australia's third-largest iron-ore exporter, said its output this year may drop to as low as 16 million metric tonnes, a day after cutting its production forecast 10 per cent from 22 million tonnes.