Now that IIP data has been made available for the first half of the current fiscal, it is possible to find out the implication of this growth for Indian steel industry. The mining sector (weight: 14.4) having faced innumerable challenges in terms of extension of new leases and allocation of fresh leases based on auction of iron ore and coal mines, the prohibitive costs out of royalty, development fees, cess and taxes, fallout of illegal mining particularly of the low Fe contained ore and stringent environmental norms resulting in lower demand for coal, has clocked a reasonably high growth of 7.9% in September 2017 and contributing thereby 0.84% to IIP growth of 3.8% during the month. The growth of mining is synominous with demand for steel and provides a positive signal of the shape of the things to come in the steel sector as raw material security is one of the prime considerations for production growth and capacity augmentation efforts. The manufacturing sector (weight: 77.6) has clocked a reasonable growth of 3.4% during the month and has pulled up the cumulative growth of the sector to 1.9% in the first 6 months.
The manufacturing sector directly impacts steel demand to the extent of approximately 38-40%, and indirectly another 10-15% by supplying machinery and equipment arising out of the demand from construction sector. It is noteworthy that machinery and equipment sector grows by 8.3% in the month. The manufacturing of other transport equipment segment that has experienced a high growth till August has moved up only by 4.3% in the month but still exhibits a high growth of 9.1% cumulatively. Demand for rails and shipping vehicles have gone up due to expansion of DFC and railways own demand for doubling of lines, gauge conversion and more rolling stocks procurement. A part of the plate and structural demand also is catered to by the expansion of this segment.
The automobile sector is maintaining its growth journey. During the first 6 months, the passenger vehicles sales rose 9.16% compared to last year, while commercial vehicle segment notched 5.96% growth with light commercial vehicle exhibiting a respectable 14.76% growth. The 2-wheeler sales grew by 10.14% in the first half. The income by the middle class segment continues to be the major indicator of auto sector growth. This has reflected in a 13.1% growth in manufacturing of motor vehicles and trailers segment in September. However a subdued growth in auto production in the previous months has brought down the six-monthly growth to 4.6% only. A notable fact is an extremely high growth rate of 94.5% achieved by manufacturing of bodies of trucks, lorries and trailers in September 2017.
Even assuming the problem of consistent data collection from the segment predominated by small and medium enterprises, the monthly growth rate should not lead to under estimation of the overall growth of the segment. The growth of electricity generation (weight: 8%) of 3.4% during the month is subdued, pulling down the cumulative growth to 5.7% only. However, the manufacturing of electrical equipment at a negative growth of 19.2% in the month and a negative of 14.9% during the first half is a concern for the growth of electrical steel sheet demand. No doubt that the total consumption of electrical steel sheet in HI of current year has dropped by 25.3% compared to last year and the domestic availability of ESS has fallen by a whopping 65% during the period.
Data show that production of electrical apparatus (switchgear, circuit breaks, switches etc.) segment has notched a negative growth of 31.5% during the month, which has brought down IIP by 0.18%. The production of electric and non-electric meters has, however, grown by 58.5% during the month. It is to be mentioned that Indian steel industry is concerned with continuing imports of the items in this sub-segment which do not have an equivalent BIS specifications and therefore is circumventing the provisions of mandatory quality control order. The heavy machinery sector, represented by the capital goods segment (weight: 8.22%), has clocked a monthly growth of 7.4% which is reassuring for steel demand in plates, structurals and HRC.
The consumer durable sector (weight: 12.84%) catering to demand for light structurals, coated products and SS steel is experiencing a negative growth of 4.8% in the month and cumulatively a negative 1.5% rise. A little concern for Indian steel is a negligible growth of 0.5% in the month and cumulatively a mere 2.0% growth by infrastructure/ construction sector in the first half with direct impact on lower growth in bars and rods consumption of 1.3% only. While progress of road connectivity has already reached around 28 km per day, the affordable housing segment is yet to pick up to contribute significantly to steel demand and steel intensity in this segment needs also to move up significantly.