Steel sector may witness temporary over-supply: Verma

Says steel capacity in the country will increase from 90 MTPA to around 135 MTPA by 2015-2016

With around 50% capacity increase in the offing, India's steel industry is likely to face a temporary over-supply situation, SAIL Chairman C S Verma said.

"Substantial capacity additions are lined up in the next 1-2 years in the country taking the capacity from the current level of around 90 million tonnes per annum (MTPA) to around 135 MTPA by 2015-16," he said.

The rise in production may lead to a "temporary phase of over-supply," he said adding, this is because "typically the increase in capacities is in spikes, whereas the increase in consumption follows a relatively smoother trajectory."

Almost all the leading steel producers in the country have been jacking up capacities, anticipating a boost in demand with an estimated USD one trillion to be invested in the infrastructure space during the current Plan Period.

On the other hand, the demand has not been rising on the expected lines. During the April-February period of the current fiscal, India's steel consumption expanded by just 0.7% to 67.253 million tonnes (MT) over the same period last fiscal, mainly due to slow economic growth.

Typically steel consumption rises by 1.1 times of the GDP growth rate for an economy. It remained largely subdued so far in the current fiscal considering India's slow GDP growth.

India's economy grew below expectations at 4.7% in October-December on falling output in the manufacturing sector. The country's GDP had expanded 4.8% in the July-September quarter and 4.4% in April-June period.

Growth in the first nine months (April-December) was at 4.6%.

Increased capacity and subdued consumption might lead to more exports.

In the first 11 months of the current fiscal, India's steel exports were up by 8.1% at 5.045 MT. Imports, on the other hand, saw a 31.1% decline during the period.