Entering 2011 on a strong note amid buoyant demand from construction, consumer durables and automobiles, the steel sector lost its sheen as the year progressed, impacted by inflation, high interest rates and rising input costs.
It was on January 5 that credit rating agency Fitch predicted 7-9% demand growth for steel in 2011, supported by an expected spurt in consumption by automobiles, white goods and construction sector.
The government's continuous thrust on infrastructure spending fuelled expectations, which were bolstered by steel makers reporting strong top-line growth in the January-March quarter. JSW Steel clocked 34% growth, Tata Steel, 18% and SAIL 7% per cent.
Bottomlines also showed remarkable growth that quarter.
However, even before the end of March quarter, an element of uncertainty started creeping in. Steel makers as well as the policymakers were virtually clueless on the likely demand and movement in the price of coking coal, an important raw material for making of steel.
Already hardening, coking coal prices shot up to a record high of $330 per tonne during April-June, from $200 a year ago due to paucity of supply in the global markets on account of a major flood in Australia's Queensland province, a major international supplier.
India's steel sector was then set to take a major hit as the slowing global economy began taking its toll on demand in Europe and the US. The Greek debt crisis and its spill over to the euro-zone eroded demand further in the following months.
The writing on the wall became clearer. Indian steel makers had to start living with costlier raw materials throughout the year, with margins shrinking. They weren't able to pass on the inflated cost to the customers.
The 'New Year' euphoria faded.
For the April-June quarter, SAIL reported 29% dip in net profit over the same quarter last year bearing the burnt of 'red-hot' coking coal price, which alone inflated its expenditure on raw material by Rs 588 crore. SAIL's turnover grew 19.7% to Rs 11,891 crore over a year-ago.
Steel makers started pinning hopes on the moderation of coking coal prices as output in Australian mines showed sign of stabilising. They also hoped for a pick up in domestic steel demand after the monsoon.
Instead, demand remained subdued, coking coal price did not decline, interest rates continued to hardened, the rupee depreciated and the bottomline of steel makers went from bad to worse in the next three months.
SAIL clocked 55 per cent decline in net profit at Rs 495 crore and JSW Steel, Rs 669 crore loss. Tata Steel Group's net profit came down to Rs 212 crore from Rs 1,979 crore in the corresponding period of last year.
Towards July-end, the Supreme Court banned mining in the Bellary region of Karnataka citing environmental degradation. JSW Steel was the worst hit. It had to cut down production to 70% of its installed capacity.
Contrary to expectations of the initial months, domestic steel consumption grew by 2.9% during the April-October period to 39.5 million tonnes, pulled down by sluggish growth, interest rate hikes and stubborn inflation.
The country's steel production in the first 11 months of 2011 stood at 66 million tonnes, up 5.6% from 62.5 million tonnes during January-November period of last year.
It was not only the performance of steel firms which impacted sector. There was been no major movement on the policy front either, barring the raising of export duty on iron ore.
The National Steel Policy is yet to take final shape. Except for brownfield expansions, no greenfield plant has gone on stream.
The year ahead also does not hold much promise unless the governments take concrete steps to boost consumption of steel in the domestic market, particularly in rural areas.
Experts say that the country and the steel makers have to make sincere efforts to develop better technology in-house.
According to them, unless that is done, Indians will continue to look for foreign collaborations where their partners will dictate terms, like in the case of SAIL-Posco joint venture; and steel firms would have to play second fiddle to them.
