Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Steel: Slacking demand melts prospects - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 31, 2001

    Steel: Slacking demand melts prospects

    Over the past few years, sluggish demand, overcapacity and poor price realisations have plagued the growth of the steel industry. The sector has been facing problems of higher borrowing cost and dwindling operating margins. Domestic consumption and production, which grew by double digit in financial year 1995 and 1996, has since slowed down dramatically.

    The industry is however, showing some signs of recovery with a growth of 7.8 percent during the first 11 months of the current fiscal. This is encouraging considering the slowdown in the auto segment, which is a major consumer of steel.

    Global steel demand is also picking up as indicated by the reports of the OECD (Organisation for Economic Cooperation and Development). Accordingly, 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.

    The production and consumption of steel is also expected to witness a fall of 3% in the US due to a slowdown in economic growth, high cost of production and stringent environmental regulations. This could impact the bottomline growth of companies like SAIL, Tisco and Essar Steel, which export mainly to the American markets. Plethora of anti dumping duties imposed by the US, the European Union and Canada will dent the growth of steel exports. This is evident from a marginal rise of 0.8% to 2.8 million tonnes in the exports of finished steel and semis during the period April-February, 2001. The industry, which was showing some signs of recovery from a severe setback, will be forced to look for other markets. Softening of international steel prices could also have a detrimental effect on the realizations of companies and it remains an area of concern. There are doubts over the long-term growth sustainability of the Indian steel sector looking at the problems faced by the steel producers.

    Production overview (in Ď000 tons)
    Particulars April-
    Jan '00
    Jan '01
    Change Growth in
    Jan '01
    Steel structurals 2,108 1,882 -10.7% -16.8%
    Bars & rods 7,485 7,181 -4.1% 4.5%
    HR coils 5,737 6,993 21.9% -0.9%
    HR sheets 454 414 -8.8% 14.7%
    CR sheets/coils 2,927 3,334 13.9% 11.1%
    GP/GC sheets 1,152 1,265 9.8% 12.4%
    Finished steel 22,050 23,547 6.8% 2.8%

    Demand for steel products also depends to an extent on the growth of auto industry. Sale of commercial vehicles during the period April-February 2001 dropped by 12% to 129,000 compared to 146,000 in the corresponding previous period. This further added to the pile of negative news for the sector.

    Also, in 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.

    The only encouraging sign for the Indian steel industry is its low cost of operations. India has abundant high quality iron ore, limestone and coal, which are the main raw material in the manufacture of steel. The cheap labour available in India provides a major cost advantage to the domestic steel industry. As a result leading steel producers of developed countries may shift their steel plants or construct new steel plants in India, looking at the cost benefits. Not surprisingly, these benefits are not reflected in the bottomline of Indian steel companies due to high interest and power costs. To provide assistance to their ongoing projects, banks and financial institutions are asked to extend financial support to steel manufacturers.

    In order to fuel the ailing steel industry, it is very necessary to increase the consumption of steel in the country. Although, per capita 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. It is an indisputable fact that India is lagging behind in terms of infrastructure. If the Indian economy has to maintain its growth rate it has definitely got to improve the infrastructure. The benefits given by the budget during the current year to housing and infrastructure sectors would be reflected positively in the demand for steel in the country. The industry also needs to tie up with international companies to market their products globally. After the removal of quantitative restrictions, effective from April 2001, cheap steel products will flood the Indian markets and inefficient steel producers will be forced to shut shops.

    Steel manufacturers worldwide are not behind in leveraging on technology. Online trading of steel (B2C and B2B) enables large number of suppliers and buyers to meet at one place and to carry out the transaction at cost effective way in the minimum time period. In India metaljunction.com is one such joint venture by the three leading steel companies Tisco, SAIL and the Kalyani Group. Another is Essar Steelís promoted clickforsteel. The initiatives take by the steel manufacturers would certainly improve demand for the steel products in time to come.

    Although, there are positive indicators for the growth of the steel sector, challenges in the sector are mounting. It remains to be seen whether the sector is able to come out of the difficulties and continue to record an encouraging growth in the coming years.



    Equitymaster requests your view! Post a comment on "Steel: Slacking demand melts prospects". Click here!


    More Views on News

    Tata Steel: A Strong Quarter (Quarterly Results Update - Detailed)

    Aug 12, 2017

    Tata Steel reported a robust operating performance on the back of strong domestic and European operations.

    SAIL: Loss at EBITDA Level Due to Higher Raw Material Cost (Quarterly Results Update - Detailed)

    Jun 12, 2017

    The company registered a negative EBITDA of Rs 2.64 billion during the quarter. This is on the back of an increase in raw material prices.

    Tata Steel: Strong Quarterly Performance (Quarterly Results Update - Detailed)

    May 22, 2017

    Tata Steel reported a robust operating performance on the back of strong domestic and European operations.

    SAIL: Pressure Continues. Loss at Operating Levels... (Quarterly Results Update - Detailed)

    Feb 15, 2017

    SAIL has reported a 26.2% YoY increase in the topline while the bottomline reported a loss of Rs 7.94 billion.

    Tata Steel: Loss from Discontinued Business Mars Performance (Quarterly Results Update - Detailed)

    Sep 27, 2016

    Tata Steel has reported a 6.3% decline in the topline while the bottomline was in red in 1QFY17.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 22, 2017 (Close)