Next few months may augur well for steel industry

By: | Published: September 1, 2015 12:09 AM

The recent report by CMIE indicates that of the 970 projects worth R10,000 billion announced in FY15, nearly 38% have commenced construction. It is well known that steel intensity per unit of investment in project construction is higher compared to the level in real estate and therefore constructional demand for steel will rise

In the midst of a strong resentment by steel manufacturers against rising steel imports from China, Japan, Korea and CIS, all of whom (particularly China) are fighting the battle of depleting domestic demand through major export thrusts, the important question that underlies all other issues is the aspect of steel demand in the country. Is it also falling as is happening in all the major economies?

In Q1 of the current fiscal, steel consumption showed a growth of 7.1% over last year. Next month it was a deceleration and in the first 4 months the consumption rose by 5.6%. A look at the primary drivers of steel demand in India may provide an answer. The construction sector has a predominant role (around 60-62%) in boosting steel demand in the country. The sector grew at 2.5% in FY14, 4.8% in FY15. Currently the demand pull impact of the sector is uneven as both real estate and industrial project construction segments suffer from lack of orders aggravated by delayed projects, unsold new/upcoming houses, high cost of liquidity, poor growth in manufacturing leading to slow rise in employment affecting demand for fresh accommodation.

Recent announcement of 98 smart cities and affordable housing scheme and initial fund allotment for the purpose pose a big challenge for the state governments in making a coordinated approach and synergy with various internal departments so that along with land development, appropriate steps are taken towards provision of all required facilities like electricity, water supply, sewerage, road,   flyovers, bridges, rail and air network, employment opportunities, education, health and recreation facilities. The 5-year period of completion of this mini cityscape is likely to generate a good demand for steel.

The relatively easy steel availability with emphasis on steel-based structures for faster and earth quake resistant construction as well as life cycle cost advantages of steel should be the major deciding factors for choosing steel as a preferred choice of material. It would be the responsibility of all concerned to propagate the cause of steel in these gigantic endeavours. The aspect of space consideration in all the planned smart cities may encourage high-rise structures at least for housing, hospital building as well as lead to large span structures for other civic amenities thereby contributing to higher demand for steel.

As regards project construction, the recent report by CMIE indicates that of the 970 projects worth R10,000 billion announced in FY15, nearly 38% has commenced construction. It is well known that steel intensity per unit of investment in project construction is higher compared to the level in real estate and therefore constructional demand for steel would rise in Q2-Q4 of the current year.

It is also interesting to observe that the government has successfully concluded with Japan the part funding of Dedicated Freight Corridor project for which Japan would provide a loan of $618 million with an assured supply of the entire requirement of rails thus depriving the new Rail Mill at Bhilai to develop and supply this large tonnage. The announcement of constructing around 225 rail over bridges, which are mostly steel intensive construction, is good news for steel producers.

Combining these two positive factors, the growth of construction sector for the full FY16 may be placed at 6-7 per cent. The current growth of auto sector is encouraging in raising demand for HR/CR/Coated sheets /plates/round. It is good to see a rising market for value added steel. It would however continue to be a target sector for imported steel.

The engineering and processing industries are facing a stiff challenge from machinery and equipment imported from China and a few other developed countries. Similar is the fate of consumer durable industries other than passenger cars. The Q1 production data of 1.5% and 3.7% growth for capital goods and consumer durable segments are worrisome for steel industry. However, with more project implementation envisaged for Q3 and Q4, the situation is going to change for the better in the coming months.

The author is DG, Institute of Steel Growth and Development. Views expressed are personal.

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