Notwithstanding the current economic slowdown, the country’s largest steel producer, Steel Authority of India (SAIL), sees a bullish market for the sector in coming months with an increase in production as well as prices. The steel PSU?s confidence stems from infrastructure and industrial users? shift from imports as a weak rupee makes imports costlier.
The company also sees an increase in demand from certain users.
Speaking to FE, SAIL chairman CS Verma said that market conditions for flat steel look good and the company expects to make up losses of the past few months with increased sales in the remaining period of the current fiscal.
?In the last one year, steel prices fell by 10-15%. I don’t think prices can dip any further as they have stabilised in the last couple of months. Now, they may move upwards with growing demand,? Verma said.
SAIL has already started to turn the corner with an impressive 16% growth in sales in the month of August. The company sold 10.86 lakh tonne of steel products in August this year compared to 9.38 lakh tonne in the corresponding period of last year. Against expectations, this growth has come largely from sales of flat steel products, which are mainly used for industrial consumption. The demand for construction steel still remains flat (in line with the slump in construction).
Like other industrial sectors, the steel industry is also impacted by a free fall of the rupee as it imports most of its coking coal requirements. SAIL, which loses R150 crore for every R1 depreciation against the dollar, has got some relief from the recent fall of the currency due to subdued coking coal prices in the international market. Prices have come down sharply from $190/tonne last year to $120/tonne.
The steel major’s bounceback has come amid a mild recovery in the performance of the core sector, comprising seven infrastructure industries besides steel. Core sector growth stood at 3.1% in July on the account of strong growth in steel, petroleum refinery products and electricity sectors. Steel production (weight: 6.68%) recorded growth of 7% in July, helped by the base effect to an extent. In July 2012, growth had fallen to 1.1%.
“SAIL’s projections for growth are not completely offtrack. Actual steel capacities have been added in the last few months by both SAIL and Tata Steel. And, on numerous occasions, demand follows increased production, especially by companies with large capacities,” said Sushim Banerjee, director general of Institute of Steel Development and Growth (INSDAG).
At present, the price of benchmark hot rod coil steel is around R34,000 per tonne. The steel industry registered growth of 13.3% and 9.9% during financial years 2010 and 2011, but Indian steel consumption grew only 5.5% during 2012 due to a slowdown in demand from its key consuming industries, namely construction, capital goods and automobiles. Even at this level, the consumption growth in India has remained much above the global average.
In terms of crude steel production, while global growth fell in 2012, it remained at 5-6% in India. Even in the January-July period of 2013, against global production growth of 2%, India?s growth remained ahead at 2.7%. According to World Steel Association, China produced 716.5 mt of steel, an increase of 3.1% over 2011, thereby increasing its share of world output to 46.3% in 2012 from 45.4% in 2011. Japan produced 107.2 mt and South Korea 69.3 mt in 2012.
The positive outlook given by SAIL has been reinforced by other private sector steel players such as JSPL, JSW Steel and Essar. All these companies are going full steam to increase their production capacity. JSPL, in fact, would be doubling its steelmaking capacity in the next two years on projections of a pick-up in demand.
“The focus of the government to clear impediments in infrastructure projects is bound to create demand for steel. The outlook for the sector is positive and we are expanding capacity to feed consumption growth in ther country,” JSPL managing director and CEO Ravi Uppal said. According to Uppal, in the next two years, the company will be more than doubling its steel production and power generation capacities. Steel production capacity will go up from existing 3.5 million tonne per annum to 7.5 million tonne per annum.
SAIL is also adding new capacity and its expansion and modernisation programme has continued despite the company reporting losses in the last few quarters on account of low steel prices and demand.
?With new production capacities being added after a gap of around 15 years, we plan to increase our present capacity of 14 mt to 19 mt by the end of this fiscal,” Verma said.
The PSU steelmaker had earmarked R61,000 crore for its expansion and modernisation plans and, against this, an expenditure of R47,000 crore was already incurred.