Steel: Any encouraging signal? - Views on News from Equitymaster

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Steel: Any encouraging signal?

Mar 28, 2001

Steel industry in the past few years is witnessing a sluggish growth rate. Production of steel during the first 11 months of the current fiscal however, showed an increase of 7.8% compared to previous period. This is encouraging considering the slowdown in the auto segment, which is the major consumer of the steel. According to the OECD (Organisation for Economic Cooperation and Development) report, global demand for steel is likely to remain high during 2001 and may grow by about 0.5%. Consumption is likely to increase in Latin America, India, West Asia and China, while there may be a decline in the consumption of steel in some Asian countries. Apparent steel consumption of the world was nearly 734.5 million tonnes of finished products in 2000. Production of crude steel was 842 million tonnes during the year. India's apparent steel consumption increased by nearly 10% in 2000 and is likely to continue increasing during 2001. Production of crude steel in the country also increased by 10.9% in 2000 and may grow by another 5% in 2001. The production and consumption of steel is however, expected to witness a fall of 3% in the US due to weakening economic growth. This could impact the Indian exports as the American markets account for major portion of steel exports.

Added to the pile of negative news is the drop of 12% in the sales of commercial vehicle sales during the period April-Feb 01. Negative growth recorded by the market leader Telco hit growth in the segment. Total sale of the vehicles during the above period stood at 129,000 compared to 146,000 in the corresponding previous period.

The steel industry in India is passing through a difficult phase. Comparatively higher installed capacity than demand is keeping steel prices depressed. The export faces stiff regulations of anti dumping duties from the US and European Union (EU). Although, per capital consumption of steel in India is very low (compared to developed countries), the industry has to find out innovative ways to increase the steel consumption. Incentives given to the housing industry during the current budget and increase in infrastructure spending is expected to fuel the demand for steel in the current year. Also, banks and financial institutions have been asked to assist the ongoing steel projects. These positive factors are expected to improve the consumption bringing down the gap between demand and supply.

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