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Steel: Facing rough weather - Views on News from Equitymaster
 
 
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  • Mar 12, 2001

    Steel: Facing rough weather

    The Indian steel industry has been going through one of the worst slowdowns over the last three years. Domestic consumption and production, which grew in double digits in FY95 and FY96, has since been sluggish.

    Finished steel production declined by 0.3% during December 2000 as opposed to growth of 12.4% in December 1999. During the current fiscal year, this was the first month of decline over the corresponding month of the previous year.

    The fall in finished steel production during December reflects an 18.6% fall in hot rolled sheets production, 15.7% decline in production of steel structural and the 6.5% decline in production of bars & rods. The demand for hot rolled sheets was affected adversely with a slowdown in the automobiles, engineering and consumer durable sector.

    Growth of finished steel production during April-December 00 was put at 8.1%. However, this was lower than the 12.7% growth recorded in the same period of the previous year. Similarly, growth in production of hot rolled sheets at 11.9% was comparatively lower than the same period of 1999.

    Production overview (in 000 tons)
    Particulars April-
    Dec '00
    April-
    Dec '01
    Change Growth in
    Dec-01
    Steel structurals 1,877 1,729 -7.9% -15.7%
    Bars & rods 6,415 6,721 4.8% -6.5%
    HR coils 5,043 6,379 26.5% 13.0%
    HR sheets 417 368 -11.8% -18.6%
    CR sheets/coils 2,617 3,001 14.7% 4.9%
    GP/GC sheets 1,031 1,138 10.4% 3.4%
    Finished steel 19,661 21,256 8.1% -0.3%

    During the last two years, steel exports also witnessed marginal growth on account of plethora of anti-dumping duties imposed by the US, the European Union (EU) and Canada. The steel exports in the current year are likely to hit with the recession in the US economy. The industry, which was showing some signs of recovery from a severe setback, will be forced to look for other markets. This would impact the bottomline growth of companies like SAIL, Tisco and Essar Steel, which export mainly to the American markets.

    Also, during the current budget no major announcements were made for the ailing steel industry. Custom duty on seconds and defective hot rolled coils has been increased from 25% to 35% to reduce the inflow of these products into the country. However, this will bring only marginal protection to the steel industry, as these products accounts for approximately 28% of the total imports of steel products.

    A number of steel companies, except Tisco, are in the red due to large cost overruns. The growth in the steel consumption can now come only through higher spending in infrastructure. Further, benefits allowed to auto sector through reduction of excise duty, higher import levy and expectation of new auto policy could spur the demand. Rationalisation of duty structure on steel consuming industries like the white goods sector will also boost demand for steel.

     

     

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