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Steel: Situation might get worse - Views on News from Equitymaster
 
 
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  • Jul 6, 2001

    Steel: Situation might get worse

    The Indian steel industry is feeling the heat of a global slowdown. The consumption of steel in the first quarter of FY01 remained flat at 6 m tonnes. The sliding demand was mainly due to decline in production of white goods (refrigerators and air-conditioners), electric generators, commercial vehicles and cars.

    Adding to the gloomy picture is stiff trade actions by the US, Canada and European Union (EU) against the import of hot rolled coils (HRC) from India. The recent US steel trade investigation under section 201 covering all steel imports could result in a complete blockage of the Indian steel export for the US markets.

    As per International Iron and Steel Institute (IISI) report global steel production declined by a YoY 2.5% in May ’01. During the period January – May ’01, steel production was down by 0.2%. Recessionary trend in the automobile, electrical equipment and construction sector resulted in increasing surplus capacity. This has increased the pressure on the international steel prices. The prices of HRC have fallen by over 24% from around US$ 290 per tonne in January ‘00 to US$ 220 per tonne in June ‘01. In the domestic markets too, flat steel prices have recently dropped by Rs 2,000 per tonne.

    US spoil the show
    (Production in '000 tonnes) May -00 May -01 Change
    European Union 14,593 13,814 -5.3%
    C.I.S. * 8,254 8,680 5.2%
    North America 12,114 10,055 -17.0%
    South America 3,430 3,423 -0.2%
    Middle East 789 830 5.2%
    Asia 27,263 28,221 3.5%
    Total 63 countries 72,194 70,412 -2.5%
    * CIS: Common wealth of Independent States
    Source: IISI

    Increasing capacity in the domestic markets is another factor pressurizing the steel prices. Jindal Vijaynagar Steel’s plans to hike its HRC capacity is likely to further add to the total domestic capacity, which stands at 10.8 m tonnes currently. The domestic consumption of steel is around 7.5 m tonnes and addition in capacity could further pressurize the flat steel prices.

    The domestic market for long products however, seems to be providing some relief in an otherwise dark scenario. The demand for products such as rebars, rounds and structurals has registered a growth of around 3% in FY01. The prices too have increased by around Rs 800 to Rs 900 per tonne for various products in this category. The decline in the import of scrap steel has been largely responsible for better performance of this segment. Also, the prices of international scrap in general have gone up, which has resulted in a decline in imports.

    Accumulation of inventories and falling steel prices are casting a shadow on the steel sector prospects. This could force global consolidation in the steel industry to provide sustainability to steel prices.

     

     

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