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Steel production dips - Views on News from Equitymaster
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  • May 14, 2001

    Steel production dips

    After having grown at an encouraging rate of 14% in FY00, steel production growth in FY01 slowed down to 5.3%. The fall in production was triggered by a slowdown in the industrial activity.

    The demand for steel is derived from other sectors like automobiles, consumer durables and infrastructure. Being a core sector, it tracks the overall economic growth. Not surprisingly with a decline in GDP and IIP, production of steel registered a sharp drop.

    The index of Industrial Production (IIP) grew at a rate of 4.9% in FY01 compared with a growth rate of 6.7% in FY00. Poor performance by the manufacturing sector dragged down the IIP. Manufacturing sector, which has a weightage of about 80% in the IIP, grew at a dismal rate of 1.6% in March 01 compared to 9% in March 00.

    Consumer durables sector grew at an encouraging rate of 15.9% in first 11 months of FY01 (13.7% in the corresponding previous period). However, for the first time in several months, the sector registered a negative growth of 2.4% in March 01 (growth of 18% in March 00). More discouraging figures were from capital goods sector, which grew at a meager 1.4% in FY01 compared to 6.9% in the previous year.

    The de-growth in the industrial activity is largely responsible for the decline in steel production in FY01. Finished steel production during the year was put at 28.3 million tonnes (up 5.3% YoY). Growth in production of both hot rolled coils (up 14.8% YoY) and cold rolled coils (up 11.8% YoY) was also lower during the year compared to the previous year. Except for cold roll sheets/coils, steel bars and rods almost all the steel segments registered a decline in the last month of the year.

    Trend of steel production
    ('000 tonnes) FY00 FY01 Change Growth in Mar '01
    Steel structurals 2,589 2,313 -10.6% -28.0%
    Bars & rods 8,699 9,225 6.0% 11.9%
    HR coils 7,142 8,195 14.8% -1.0%
    HR sheets 523 473 -9.7% -4.8%
    CR sheets/coils 3,603 4,029 11.8% 3.4%
    GP/GC sheets 1,425 1,534 7.7% -9.2%
    Finished steel 26,950 28,366 5.3% -2.9%

    Indian steel companies that had taken to exports to overcome the sluggishness in domestic demand were hurt by the imposition of dumping duties by various countries including US, Canada and the European Union. Also, the slow down in the US economy has adversely affected the prospects of the domestic steel companies. Growth in a lucrative export market has begun to taper down. If the trend were to persist, Indian steel companies would be adversely affected in future.

    Steel companies are however anticipated to perform well in the coming months as a result of a pick up in housing activity. The Gujarat earthquake is likely to trigger large-scale construction activity. The exemption from excise duty for steel procured for reconstruction purposes will only help lift demand as steel becomes more affordable.

    Apart from this, domestic steel majors have decided to form an alliance called The Indian Steel Alliance for the promotion of steel in India (in line with the Steel Alliance of the US and Canada). The alliance would chalk out a five-year programme for creating awareness about steel. This will help generating demand for steel in India.



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