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Steel: Grim scenario continues

Aug 31, 2001

The downturn in the industrial activity has hit the steel sector. During the quarter ended June 01, finished steel production declined by 0.4% compared to an impressive growth of 14.6% in the same quarter of the previous year. The decline in overall finished steel production during April-June 2001 mainly reflects the fall in production of hot roll (HR) coils and HR sheets by 8.7% and 5.9% respectively. In the corresponding period of the previous year, HR coils production had grown handsomely by 36.5% while that of HR sheets had declined by 5.8%. The fall in HR sheet production to an extent indicates a shift to value added cold roll (CR) products.

However, a slowdown is also apparent in CR sheets production, which grew by a mere 7% during the June quarter of the current year compared to 24% growth in the same period of the previous year. Production growth of bars & rods was maintained at 6.6% compared to 6.9% growth in 1QFY01. The only category where growth was higher was GP/GC sheets, which grew by 16.1% as against a marginal 0.6% growth in 1QFY01.

Steel production slides
('000 tonnes) April-June '00 April-June '01 Change Growth in June '01
Steel structurals 589 496 -15.8% -19.1%
Bars & rods 2,198 2,344 6.6% 11.8%
HR coils 2,136 1,950 -8.7% -8.9%
HR sheets 122 115 -5.9% -13.8%
CR sheets/coils 970 1,039 7.1% 2.4%
GP/GC sheets 375 435 16.1% 4.9%
Finished steel 7,318 7,257 -0.8% -0.4%

The steel industry, particularly the flat products segment is going through one of its worst phase. This is mainly due to a sharp decline in the demand for automobiles. Both HR and CR prices have come down hitting the realizations of the steel companies.

Recently, even the long product prices have also come down by Rs 1,300 per tonne to Rs 11,700 per tonne. The prices failed to maintain the rally witnessed in the past three months. The major reason attributed for the crash is increased activity at the ship-breaking yard at Alang in Gujarat, which supplies scrap to most producers. Scrap from broken-down ships is used to make ingots and billets, which are then rolled into different long products like re-bars, rounds, structurals and channels. Most of these products are used in the construction industry. Incidentally, a fall in the Alang yard's activity was the major reason for rise in prices earlier. Also, the additional capacity from Jindal Vijaynagar Steel (JVSL) in the long sector could have led to a fall in prices.

Falling steel prices and bleak export scenario could further worsen the current situation. This is likely to affect the earnings growth of steel companies in the current year.

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