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Steel: Signs of strength - Views on News from Equitymaster
 
 
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  • Mar 20, 2002

    Steel: Signs of strength

    Steel production, which stalled in the first five months of FY02, started rising, beginning September 2001. Production of hot rolled coils (HRC), cold roll (CR) coils & sheets and galvanized product and sheets grew at better than expected rates during the period September December 2001.

    Finished steel production increased by 3.5% in December 2001, which is the highest growth recorded since February 2001. A rise in infrastructure activity has helped in boosting production growth. This is reflected from 8% rise in bars & rods and a growth of 30% in GP/GC sheets, which are used for construction purpose. Housing and infrastructure activity in the country continued to grow at a strong rate, spurring steel production. Production of CR sheets and coils increased by a marginal 5% in line with the production of passenger cars, which rose by 7% in the first 10 months of FY02. Production of passenger cars is rising at healthy rates, which is likely to drive CR sheet demand in the coming months. HR sheets production too spiraled up by 22% on the back of increasing demand from engineering industry. On the other hand, steel structurals and HR coils recorded negative growth rates.

    Snapshot of steel production
    ('000 tonnes) April-Dec '00 April-Dec '01 Change Growth in Dec '01
    Steel structurals 1,758 1,649 -6.2% -9.9%
    Bars & rods 6,811 7,341 7.8% 3.7%
    HR coils 6,159 5,648 -8.3% 0.7%
    HR sheets 361 441 22.2% 48.4%
    CR sheets/coils 3,024 3,176 5.0% -0.8%
    GP/GC sheets 1,126 1,462 29.8% 34.3%
    Finished steel 22,039 22,234 0.9% 3.5%

    In order to boost steel production growth, the Union Budget has provided some relief to the industry by lowering custom duty on raw materials (natural graphite powder, silicon metal, sintered alumina and boron carbide). Reduction in duty to an extent would help steel companies in bringing down their cost of production. The government has also increased the custom duty on seconds and defective to protect the industry from low price imports. These measures are likely to contribute in improving the languishing steel production growth.

    Meanwhile, steel prices in the International markets have started showing an up tick in the recent months on the back of a rise in demand and reduction in inventories by steel majors. In the domestic market, SAIL and Tisco have already increased prices of flat and CR products by 8%-9%. Prices of HR coils and sheets have been hiked by similar percentage to Rs 11,700 Rs 13,500 per tonne. Steel exports are also likely to rise as the US has exempted the Indian steel exports from the additional tariff of 30%. Improvement in realizations and pick up in volumes would be reflected in the financial performance of steel companies in the first quarter of next fiscal.

     

     

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