Belying the downward forecasts of almost all analysts and financial consultants, Indian steel consumption has grown by 7.7% in first four months of the current fiscal. GDP in 2011-12 has been projected to be around 6.5% and all indications suggest that GDP growth in Q1 of 2012-13 is not likely to be higher than 6%, although the official estimates talk of a growth rate exceeding that of 2011-12. Data on Industrial growth, just released, indicate a sharp downturn from 6.9% in Q1 of 2010-11 to a dismal (-) 0.1% in Q1 of 2012-13. Manufacturing sector accounting for industrial production has dropped from 7.7% in Q1 of previous year to a negative 0.7%.
Capital goods sector comprising heavy machinery and equipment and most steel intensive in use has bottomed out at a negative 19.6% growth compared to 17% growth achieved in the corresponding period of last year.
The Business sentiments displayed by Purchasing Managers index at in July?12 do not offer any optimism. All these profoundly evident downward elements should reiterate the strong positive correlation between macroeconomic indicators and steel consumption and a possible falling trend in the latter also. This, however, is not happening and the reasons must be analysed to form views on the future developments.
During April-July?12 the total finished steel production for sale in the country has gone up by 3.6% over the previous year. Assuming that a major component of production has flowed into the economy in various user segments and the balance is reflected in the inventory build-up data, it must, however, be appreciated at this stage that official estimates do not have any access to inventory build-up by the small and medium steel producers for lack of exchange of data and to this extent there may be a marginal deficiency in capturing the full measure of stock increase or decrease arising out of market dynamics at any particular point of time.
In advanced countries, the dominant role played by wholesalers and service centres in selling steel followed by direct sales by the steel plants has minimised the problem of data collection on system inventories.
The production of finished steel is then added with net exports (exports minus imports) and net inventory addition (compared to the previous period). In the first four months the imports of finished steel has gone up by more than 37% with a decline exceeding 22% in exports. Here, it is assumed that total import flows are consumed in the same month for which figures are made available. Thus a sudden jump in import arrivals in a particular month may lead to a boost in consumption figures and a rise in export outflows may indicate a fall in consumption.
It is therefore well appreciated that monthly consumption figures are indicative of fluctuations, which may get even out over a longer period and this may be the origin of the terms like apparent steel use and Real consumption. Keeping all these factors in view, the direct correlation of the macro indicators with the monthly figures of steel consumption has to be analysed with greater circumspection.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal