Steel consumption mirrors economy

Written by Sushim Banerjee | Sushim Banerjee | Updated: Dec 18 2012, 08:37am hrs
The GDP figures for Q2 hardly took anyone by surprise as the July-September period was dominated by political events overshadowing the economy and a few measures that were announced with regards to FDI and reducing subsidies were to be discussed in Parliament and to become effective afterwards. The movement of one or two indicators in H1 has the potential of boosting the economic health of the country by giving a fillip to demand, which justifies the capacity augmentation that is being planned. Mining and quarrying have grown by nearly 1% against a 3% drop in HI of the previous year. The construction sector has grown by nearly 1.8 times compared with last year, which is reassuring. Financing, insurance and real estate sectors have grown by more than 10% in the current fiscal.

Taken together, the trend implies that the spurt in domestic savings has found outlets in real estate purchase and although infrastructure construction has not shown much activity, construction of residential and commercial complexes has seen an uptrend. Investment indicated by gross fixed capital formation as a percentage of GDP at market prices remains almost steady at 33.3%, but the rate of growth of investment has sharply come down from 9.7% to 2.3% in the current fiscal. The key concerns are the much slower growth of GDP in manufacturing (0.5%) and much less progress in electricity, gas and water supply (4.8% against 8.9%). Slow growth in two of these steel-intensive segments has adversely affected steel consumption, which has shown 4.2% growth in the first eight months of the current year.

The consumption of reinforcement bars, wire rods and rounds has been marginally lower than the previous year in the first 7 months of the current fiscal. Structural consumption has gone up, which is in tune with the increase in the construction sector. Slow growth in the manufacturing sector (1%) has been caused by no growth in machinery and equipment segments, sharp negative growth (-25%) in the electrical equipment segment and poor growth in the transport equipment segment (-1.1 %). Despite these factors, the consumption of flat steel has grown by 8.8% during the period, primarily due to the high growth in consumption in CR coils and CR sheets, electrical sheets and pipes.

Over April-November 2012, the production of automobiles increased by 4.8%. While production of passenger cars went up by 9.6%, that of commercial vehicles rose by 2.7%. This would have resulted in higher sales of HR, CR, GP and coated sheets and coils. The rate of growth in imports, which, at the beginning of this year reached more than 38% with declining growth in exports, has since reversed the trend. Steel imports in the first eight months have achieved around 20% growth over the last year with export growth almost touching 17%. Higher exports resulted in the production rate going up by more than 3%.

Uncertainty around raw material availability may restrict production and result in price increases in the coming months. The ban on iron ore mining in Karnataka and Goa, which Orissa is likely to follow, and the recent announcement to reserve 50% iron ore production for industries located within the same state would reduce availability and further affect exports. Only immediate focus on beneficiation, agglomeration and pelletisation can reduce this risk.

The author is DG, Institute of Steel Growth and Development. The views expressed are personal