After witnessing a slump in demand in the October-December quarter of the current financial year that forced output cuts, the domestic steel industry is on a revival mode. Things are also looking up for the iron ore industry, which is largely export-dependent. Though the price realisation has not changed, companies are happy as rising demand will lead to better cash flows, helping them meet their working capital needs.
Domestic steel producers had cut production to the tune of 25 per cent in November 2008 due to low demand from sectors like automobile and consumer durables. The cut prevented further inventory pile-up.
“The demand has improved due a downward movement in inventory levels, both at consumers’ and producers’ end. Once it picks up further, we expect some movement in prices too since huge price cuts were taken in the previous quarter. We have revived the blast furnace that was shut down in November and our production should go back to normal,” said Jayant Acharya, president (sales & marketing), JSW, the country’s third-largest steel producer.
Acharya added that the imposition of 5 per cent import duty on steel in November last year had given some relief to the domestic industry. “While the duty was welcome, it remains insufficient and needs to be enhanced to 15 per cent to prevent dumping,” he said.
“The demand is improving since inventory levels are coming down due to production cuts. Now, mills can operate at 80-85 per cent capacity provided there is no dumping of cheaper steel from abroad. We are currently operating at 60 per cent capacity and should be able to increase it to 75 per cent from March,” said Vinod Mittal, vice-chairman and managing director, Ispat Industries.
IRON ORE DEMAND FIRMS UP
The country’s iron ore exports surged 38 per cent to 13.6 million tonnes (mt) in December 2008 as compared with 9.8 mt in December 2007. According to figures compiled by the Federation of Indian Mineral Industries (FIMI), iron ore exports in April-December 2008 fell 5.4 per cent to 64.47 mt from 68.15 mt in the corresponding period of 2007. China accounts for about 90 per cent of India’s iron ore exports.
“Iron ore stocks in China have come down from a high of 80 mt in October to 60 mt. This has resulted in good demand for iron ore from exporting nations, including India. The reduction in export duty has also helped,” said FIMI President Rahul N Baldota. Baldota is also the executive director of MSPL, which exports 5 mt iron ore annually.
However, according to Baldota, the price realisation has improved only marginally, from $55 a tonne (freight-on-board price) in October to $60.