India’s steel consumption grew by a mere 1.3 per cent in the first five months (April-August) of this financial year, at a time when spending on infrastructure development is given more emphasis. The production, however, grew by 9.9 per cent.
According to data made available by the Joint Plant Committee, the government organisation tracking the steel metrics, the real consumption of steel in the first five months has been 28.05 million tonnes (mt) as against 27.69 mt in the same period a year ago. The production in the given period has increased by nearly 10 per cent, at 29.06 mt. Pinakin Parekh and Neha Manpuria of JP Morgan, in their report dated September 6, said, “We remain surprised by the wide variance in the consumption and production growth trends. The large increase in production compared with muted steel demand points to an increase in the inventory levels in the system.”
Rakesh Arora, head of research, Macquire Capital Securities India, told Business Standard, “The demand from the domestic market is absent and this is clearly visible from the data. We were registering consumption growth of around 10 per cent for the past few years and that is definitely not going to happen this year.” Arora said the consumption might grow to four per cent at the most by the end of the financial year.
Even at an optimistic four per cent growth in consumption estimates, it will remain grossly below the targeted 10 per cent rate.
How do the next six months look?
The forecast picture doesn’t look that rosy either for the steel sector. Exports have brought some relief for the sector with an increase of over 56 per cent in the first six months. The country exported a total of 1.8 mt steel in the April-August period. The exports for the month of August alone doubled on an annual basis and jumped by six per cent on a month-on-month view.
The only silver lining in the sector has been the decline in steel imports. The data shows in the given period (April-August), imports fell by 45 per cent, to 2.2 mt as against 4.1 mt last year.
“In our view, much of the improvement in steel volumes reported by the companies would be driven by the higher exports and helped partly offset the weak demand condition in the domestic market,” Parekh and Manpuria said.
Arora of Macquire Capital, too, seconded the view and said exports would continue to prop up demand for the domestic steelmakers in the current financial year. “The domestic demand is weak and the investment cycle, too, continues to be weak,” he said.
The fall in steel consumption has been blamed on the delay in infrastructure spending and the slowdown in the automotive sector.
The passenger car market in India declined by 7.7 per cent in the month of August.
The consumer durables sector, another major area of demand for steel, is not looking too bright. According to the Index of Industrial production (IIP) data, the growth in consumer durables for the first quarter was in single digits as against double-digit growth in the same period a year ago. Experts believe this dismal performance by the consumer durables sector will continue for a while. While July and August IIP numbers are yet to be released, industry experts say the trend is likely to be no different.
Jayant Acharya, director (sales and marketing), JSW Steel, India’s largest steelmaker by capacity, agreed that demand has been a cause for concern. He, however, hopes that with the coming festive season will see an increase in the demand for vehicles. “We are hopeful that the auto demand will pick up. Infrastructure continues to lag and we are watching it closely.”
