Manufacturing for full FY21 grows by (-) 9.8% and IIP by (-) 8.6%. This may be compared to second advance estimates for GDP to de-grow by 8% in FY21.
IIP for March 2021 presents a high potential industry picture. The low base of last March as the country was dipped in the menacing virus may be the primary reason for such a high growth rate (manufacturing by 25.8%, electricity generation by 22.5%, mining by 6.1% and IIP by 22.4%). The high indices for March 2021 have brought down the de-growth rates for the full year. Manufacturing for full FY21 grows by (-) 9.8% and IIP by (-) 8.6%. This may be compared to second advance estimates for GDP to de-grow by 8% in FY21.
Indian steel industry is facing an interesting scenario. First, the domestic flat category prices that increased around 47% during the last six months are still at a discount of minimum 10% with global prices. The current HRC 2.5 mm structural grade is ruling at an average price of Rs 67,000/t ($905/t) ex-works Mumbai (without GST) and the spread between HRC and CRC has widened to Rs 14,000/t against the normal premium of Rs 5,000-6,000/t. For rebar, while it is ruling at Mumbai at Rs 50,700/t ($685/t, without GST), the rebar for Turkey is prevailing at $770/t.
Second, from mid-April to May, the major auto manufacturers have announced production cut down at their plants. During April ’21, sales of passenger cars were expectedly lower by 10% compared to March ’21 and more de-growth in sales were observed with regard to sales of two- and three-wheelers. These plants and their OEMS are also supplying liquid medical oxygen in this crisis period. The consumer durable segment is cutting down production of ACs and refrigerators as household expenditure is on hold to cope with sudden surge of Covid.
Third, the road sector has emerged as one of the focused sectors with the plan by the government of constructing 4,600 km in FY22. These projects under PPP would be implemented by EPC or by HAM module which have got majority acceptance. Building roads at the rate of 40 km per day has been aimed during the current fiscal.
Fourth, Chinese export offers for steel in the follow up of withdrawal of export rebates have gone up. Export offers for HRC from China are currently quoted at CFR at $1100/t, a rise of around $100/t in the last one month. This has also prompted Indian export offers to Vietnam also to go up to $1080-$1100/t. As a result, if there is a shortfall in demand in the domestic market due to the severe impact of the Covid for a month or so, Indian steel players are likely to keep their production units running by undertaking exports of HRC, CRC, galvanised and TMT by a higher volume.
Fifth, the increasing trend in iron ore prices in the global market (Chinese CFR import of iron ore 62% Fe currently quoted at $224/t) has a corresponding rise in NMDC prices of Rs 6,560/t for fines Fe 64% and Rs 7,650/t for Fe 65.5% for lumps by NMDC in May 21.
(Views are personal)