The growth rate of total steel consumption by the country has been consistently falling, from 8.8% in April-June 2012 to 3.3% in 2012-13 and 3.5% in April 2013. What is seldom highlighted is the fact that this deceleration is largely on account of tardy growth in the alloy/stainless steel sector, which slowed down from 31.6% in April-June 2012 to a negative (-)12.9% last year. In fact, it slowed down further to a negative (-)36.55% in April 2013. Assuming that the segments of the two steel categories, i.e., carbon and alloy/stainless, are different, the possible explanation could be that the recent industrial slowdown has affected the machinery and equipment, instrumentation, sophisticated equipment, interior decoration, utensils and appliances segments compared to traditional sectors such as construction, oil and gas, railways and automobiles, which primarily use carbon steel. Also, as the average price of alloy/stainless steel is more than twice that of carbon steel, the current state of subdued demand has made purchasers wary of buying expensive items, irrespective of the category. The sign of a difficult domestic market is also exemplified by the fact that while imports of alloy/stainless steel went up by 16.4% in 2012-13, exports rose a whopping 59% during the period. While alloy steel consumption experienced a severe drop in April 2013, non-alloy steel consumption grew by nearly 7%. The decline in consumption of alloy steel is not so much due to lower production as it is due to import arrivals and high exports during the month on account of low absorption capacity of the domestic market. However, official data on alloy and special steel production and consumption cannot be relied on fully to draw up a firm conclusion in this regard.
A marginally better performance by the mild carbon steel market, comprising around 94% of the total steel market in the country, is not to suggest that downward risks do not exist in the traditional market segments. Only an investment-led, stable and steady growth phase of the Indian economy would result in recovery of the steel market, both alloy and non-alloy. Growth of 2.5% in industrial production, supported by a 3.2% rise in manufacturing and 6.9% increase in capital goods production in April 2013, are favourable signals for a revival.
A few days back, the need to earn more revenues from indirect taxes, one of whose major components is customs duty, has prompted the government to impose duty of 2.5%, up from the existing nil duty, on import of all types of scrap (mild carbon, stainless steel and aluminium). On a rough analysis, it would generate about R900-1,000 crore per annum of additional revenues at the current level of imports. It would also lead to a marginal hike in the cost of production of steel, by R600-1,000 per tonne. It may be difficult to pass on the additional costs in the current depressed price scenario.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal