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Steel: Hopes of recovery? - Views on News from Equitymaster
 
 
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  • Sep 17, 2001

    Steel: Hopes of recovery?

    The steel industry continues to bear the heat. The production of finished steel declined by 0.2% during the period April-July 2001 compared to a healthy 15.7% growth in the corresponding period of the previous year.

    However, compared to a negative growth rate recorded in the past three months, July saw a positive growth rate of 1.6%. The growth in finished steel production in July 2001 reflects the growth in production of bars & rods, HR sheets, CR sheets and GP/GC sheets. While HR sheets production grew by 11.4%, production of HR coils declined for the fifth consecutive month, by 9.8% in July 2001. CR sheets productions also slowed down to 4.5%, compared to a growth of 10.3% in July 2000. On the other hand, GP/GC sheets production remained buoyant, growing by a healthy 23.2% in July 2001 on top of the 12.5% growth recorded in the corresponding month of the previous year.

    Steel prices meanwhile are hit by the global recession and supply exceeding the demand. In India too the monsoon impact may not be enough to reduce the excess capacity of 4 m tonnes in the flat product segment. The sector is expected to record a growth rate in the range of 3%-5% towards the year-end. Although, prices are expected to firm up in the second half of the year, surplus capacity in the Indian markets is likely to keep the prices under pressure.

    India’s largest steel company, SAIL has already reported a 7% dip in capacity utilization for flat steel production (75%) during the period April-August 2001. While for long products, capacity utilization is still at 100%. In the first five months of FY02, the company’s overall production declined by 6% to 2.9 m tonnes. In August itself the production declined by 13%.

    While the outlook for flat products is unlikely to improve in the near term, long product demand could remain on the higher side fueled by a pick up in the infrastructure activity in the country. Tisco has also indicated its plan to focus on long products from flat steel products.

    Meanwhile, attacks on US could have mixed impact on the Indian steel sector. America has already imposed anti-dumping duties on the import of Indian steel. Although, the Indian steel sector is attempting for the removal of several duties, in the current scenario the matter is unlikely to be resolved in the near future. On the other hand, reconstruction of the Manhattan street (in US) would require thousands of tonnes of steel, thus increasing the consumption of steel and consequently support the sliding steel prices. This may in turn give a breather to the demand supply mismatch in the global steel industry in a near term.

     

     

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