The production growth of the eight core industries in the first quarter of the current fiscal at 2.4%, though dismal, conceals the fact that the highest growth has been observed in steel sector that had clocked a 6.2% growth during the period. This exceeds other critical sectors (crude oil, petroleum refinery products, fertiliser and cement, growing between 0.2-2.9% and natural gas, coal, electricity expanding in the range of 4.3-4.9%. The IIP data just released also points to a quarterly growth to 2% only. Primarily, it is the manufacturing sector with a weightage of nearly 78% in IIP that is witnessing a slow growth of 1.8% in the quarter with a negative growth of 0.4% in June 2017. Some of the major steel-intensive components in manufacturing that witnessed a fall in output are electrical equipment dropping by as high as nearly 17% in the first quarter. The manufacturing of motor vehicles and carriers has clocked a negative growth of 0.7% in the quarter.
However, the production of machinery, furniture and other transport equipment has witnessed a reasonably moderate performance in the quarter. Hopefully the uncertainties associated with GST implementation from July 1, which had slowed down the fresh purchases of manufactured items including disposal of inventories would be over in the coming months. This along with a marginal drop in interest rate (market expecting a little more) would drive demand for consumer durables, real estate in the festive seasons ahead.
According to JPC, the consumption pattern of steel indicates that the industry has crossed the negative barrier in June and entered a positive growth phase of 4.4% in the first four months of the current year. As steel consumption in the first quarter of the previous year was quite poor (0.5% growth), the current quarter indicates higher growth in percentage. Productwise, the consumption of HRC/Sheets rose by a hefty 28%. It was possible by an increase in domestic availability of the product by 1.2 MT in the face of a drop in imports of around 0.2 MT. An export growth of 0.17 MT helped higher capacity utilisation of the domestic mills and partially neutralised lower demand from tube sector.
As regards CRC/S, the consumption in the current quarter went down by 0.85 lakh tonne. The domestic availability was higher by 0.57 lakh tonnes, imports lower by 0.31 lakh tonne and exports were higher by 1.47 lakh tonne. The offtake by the auto sector and tardy progress in consumer durable sector (on account of uncertainties in new tax rates) were the constraining factors in pushing the demand lower by more than 8%. In the coated product category, although the domestic availability was higher by 0.14 MT, the higher imports of 0.53 lakh tonnes in spite of lower exports contributed the consumption level to grow by 18%. This is the lone area (barring Semis and Pipes) where imports have gone up compared to last year.
In case of CRNO/CRGO, the domestic availability was higher by only 0.06 lakh tonnes. Even higher imports by 0.25 lakh tonnes could not lead to higher level of consumption due to poor internal demand scenario resulting in higher exports of 0.17 MT during the period to sustain the production.
In Plate category, the domestic production was higher by 0.14 MT, imports lower by 0.7 lakh tonnes. In spite of exports rising by around 0.3 lakh tonnes, the consumption grew by more than 11% during the quarter.
The slow response from fabrication, ship building and heavy machinery segments compared to the anticipated level kept the inventory of plates higher by the end of the quarter. Large dia tubes and pipes consumption has gone down by more than 11% primarily on account of poor offtake from refinery, natural gas and water transportation segments leading to lower imports and higher exports.
The flat product consumption has fared better (more than 18%) compared to long products (lower by 1.8%) which is particularly influenced by investment in construction and infrastructure sectors. Consumption of TMT and Wire Rods dropped by 3% due to lower availability of semi finished steel by the major steel produces in view of greater thrusts on finished steel production and higher value addition. Lower production of sponge iron affected production of Pencil Ingots.
International prices of both HRC and Rebar moved up by an average $85-90 per tonne in the last four and half months. This provides an enabling scenario for higher levels of exports of steel from India.
DG, Institute of Steel Growth and Development. (Views expressed are personal)