The liquidity crisis, both globally and in India, is beginning to impact the demand for steel, bringing the topline under pressure for manufacturers.
Not only the primary steel manufacturers, but also the secondary steel players are feeling the pinch of the decline in demand. Sajjan Jindal, vice-chairman & MD, JSW Steel, on Monday said, ?The impact on margins are being worked out. As many companies have initiated cost-cutting measures, margins are likely to remain the same. But the concern is on the topline, as the new order pipeline for the steel industry is shrinking.?
Anil Surekha, executive director-finance, Ispat Industries Ltd, told FE, ?The demand has almost fallen by about 20% and stocks are piling up in all the steel companies. For Ispat Industries, not only the topline but margins are also of equal concern.? According to analysts, the demand for steel grew by more than 12% in the last two years, which is now likely to reduce to 8-8.5%, the result of which will be seen in subsequent quarters.
Meanwhile, Assocham, in its report said, the impact of prevailing adverse situation has significantly reflected on the steel demand. There is a drastic fall in domestic demand as well as international demand with international price falling between 15-40% in various categories of steel.
Not sharing specifics on the company, Vikram Amin, director-marketing and sales, Essar Steel Ltd said, ?Indian steel makers are not immune to the current global situation, it will have a rippling effect in India as well. In India, while construction and infrastructure sectors are still stable, steel makers will have to adjust to the market realities.?
Moreover, the grim demand situation is also seen in the spot market with the price of Indian iron ore sold on the spot market in China tumbling to around $95-$100 a tonne CFR (cost and freight), from up to $200 a tonne in March.
According to Ankit Miglani, director-commercial, Uttam Galva Steel Ltd, ?The demand from China has slowed down which is having a significant impact. On the other hand, China has increased its exports from 3 million tonne per month to 7-8 million tonne per month, resulting in an over supply issue.?
Moreover, anticipating a prolonged effect of the global credit crisis on the domestic construction sector, Indian primary steel producers have cut output by almost 20%. ?This is a consistent effect and there is some shrinkage in demand. However, Uttam Galva will not be impacted much at the net level,? said Miglani.