Posted on 10 Jul 2015
The core sector data for May showed a moderate 2.6% year-on-year growth for the steel sector. While this hints that the industry is reviving despite global headwinds, a closer look at the actual demand-supply and pricing reveals a different story.
As per industry officials, the main reason behind the rise in domestic steel production in May and in the Apr-Jun quarter was commissioning of new plants.
"Once a steel unit is commissioned, it has to be kept running. This has nothing to do with increase in demand for the commodity in the market. A commissioned plant cannot be kept idle. It is due to this perhaps that the domestic steel production has gone up both in May as well as in Apr-Jun quarter," Ravi Uppal, managing director and chief executive officer of Jindal Steel & Power said.
The Delhi-based company produced 1.10 million tonne crude steel in June quarter, up 38% from the corresponding period last year. Most of the company's production came from its Angul and Raigarh units, with Oman also contributing one-fourth to the total output.
Increased production by other integrated steel players such as Steel Authority of India, Essar Steel and Rashtriya Ispat Nigam was also another reason for rise in domestic steel production growth.
As per the Joint Plant Committee (JPC) data, domestic integrated steel producers together produced nearly 12 million tonne during Apr-Jun, a growth of 4.3% compared to the same period last year. In May alone, these companies produced 7.5 million tonne, up 1.7% on a year-on-year basis.
JPC is the only institution in the country, which is officially empowered by the Ministry of Steel to collect data on the domestic iron and steel industry.
While production rose domestically, cheap imports from China and FTA (Free Trade Agreement) countries like Japan and Korea continue to impact the market, leaving domestic steel producers struggling to sell in the home market.
"The kind of pressure domestic steel industry is facing from imports, prices of domestically produced steel is under tremendous pressure," said Uppal.
In the quarter ended June, imports have risen 53% on a year-on-year basis to 2.54 million tonne.
Despite a pick up in consumption in the sector, domestic steel producers are unable to tap the opportunity mainly due to cheap imports.
"There is some traction seen in small infrastrcuture projects along with medium and heavy vehicals, but the issue is that the incremental demand is going to imported steel," said Jayant Acharya, Director - Commercial & Marketing, JSW Steel.
Overall, demand growth for steel is expected to double this fiscal from 3% recorded in 2014-15, but how much of it would be captured by the domestic industry needs to be watched.
"If the current scenario continues, our (domestic producers) margins are going to remain impacted. In Apr-Jun too, margins will remain under pressure for steel producers," said Acharya.
In the June quarter, India's steel consumption rose 7% on a year-on-year basis to 20 million tonne.
Though the situation has been grim for the industry for quite some time now, industry officials are hopeful that the peak demand season starting October upto March could bring in some relief.
"Oct-March is an important period as much of planned expenditure gets rolled out in this season.
