Steel price rise not an enigma; appetite to be sustained

By: |
December 23, 2020 8:41 AM

In November’20 the country consumed 8.62 MT of steel which exceeds Nov’19 level by 11%.

Russia’s production also improved by 2.6% to 70.4 MT. Toppling the US, Russia also managed to improve its ranking by one notch to the fourth position among world’s top five steel producing nations.Russia’s production also improved by 2.6% to 70.4 MT. Toppling the US, Russia also managed to improve its ranking by one notch to the fourth position among world’s top five steel producing nations.

During the first eight months of the current fiscal, steel consumption in the country has reached 53.4 MT which is 21% lower compared to last year. If the level of consumption in Jan-March’20 is added, steel consumption in the first 11 months of the current year 2020 stand at 77.3 MT. In November’20 the country consumed 8.62 MT of steel which exceeds Nov’19 level by 11%. The increasing consumption growth has been visible for the last 3 months. If we assume only 5% rise in steel consumption in December’20 over the last month (quite achievable), the consumption can reach 9.05 MT which makes the country’s total steel consumption at 86.4 MT In 2020 which is nearly 5.5% more as compared to the WSA projection of 81.9 MT made two months earlier. Steel inventory (measured at large players’ end) at 13.7 MT at the beginning of the current fiscal has been brought down to 10.9 MT by end of November implying a strong recovery in the steel market.

This only proves that the country’s appetite for steel which is one of the major indicators of economic growth in a developing economy, is rising and at a level surpassing the estimates of the forecasting agencies and would continue to be sustained in the coming years 2021 and 2022. The latter expectation is much linked with the anticipated growth in India’s GDP at 8.8% for 2021 projected by IMF.

It is interesting to look back at steel consumption in some of the previous months along with the average price of HRC (excld. GST), for instance, in April’20 (Cons: 1.1 MT, HRC: Rs 36150/t), May”20 (Cons: 4.8 MT, HRC: Rs 35150/t), June’20( Cons: 6.4 MT, HRC: Rs 35375/t), July’20 (Cons: 7.7 MT, HRC: Rs 36400/t), Aug’20 (Cons: 8.1 MT, HRC: Rs 38750/t). Two things are clear from this data. Steel demand during the first 5 months of the year was hovering on an average 35-40% lower than previous year which itself was a year of subdued demand growth. As production trend was negative, the capacity utilisation was very poor and debt servicing became a huge burden for all the producers. The balance sheets of each steel producer, large or small, showed huge deficits, the banks were extremely reluctant to provide any credits even for meeting working capital expenses and all works connected with expansion and upgradation of facilities stood standstill.

Indian steel industry saw through the period with grit, courage, exploiting export opportunities to keep the plant running with a never ending desire to see the market revival.

The demand for 2/3 wheelers, tractors, passenger cars, consumer appliances surfaced along with demand from the affordable housing segment, infra in roads, water pipelines, Metro expansion, DFC and other construction demand from projects in power plants, railway expansion. For the last two months, the growth in manufacturing sector (3.5% growth in October’20) has sent a positive signal in the market, especially in the MSME sector.

The author is former DG,  Institute of Steel Development and Growth

Views expressed are personal

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