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Steel: Signs to cheer? - Views on News from Equitymaster
 
 
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  • Dec 13, 2001

    Steel: Signs to cheer?

    Steel production for the first time in the current fiscal has recorded higher growth rate of 2.2% in September 01, after reporting a dip of 1.4% in August 01. Growth of finished steel production has remained flat in the first six months of the year.

    September was infact the second month after July when the production recorded growth. All the segments of the steel, especially GP/GC sheet showed encouraging growth rates in September. During April-September 2001 the finished steel production marginally fell by 0.03% to 14.6 m tonnes. However, production of bars & rods and GP/GC sheets recorded healthy growth of 10.7% and 22.8% respectively during the same period. CR sheets & coils production also grew by 6.7%. Although steel production edged higher, realizations continue to remain flat with marginal improvements.

    Signs of improvement
    ('000 tonnes) April-Sept '00 April-Sept '01 Change Growth in Sept '01
    Steel structurals 1,153 1,037 -10.0% 13.0%
    Bars & rods 4,501 4,985 10.7% 5.5%
    HR coils 4,133 3,807 -7.9% 4.8%
    HR sheets 255 250 -2.0% 4.3%
    CR sheets/coils 1,955 2,087 6.7% 1.6%
    GP/GC sheets 746 916 22.8% 34.2%
    Finished steel 14,615 14,611 0.0% 2.2%

    Positive growth rates in this core sector to an extent indicate signs of economy bottoming out. However, anti dumping duties imposed by US is likely to trim the steel production growth rates. Also, removal of quantitative restrictions is hitting the steel industry through cheap imports. So in order to protect the Indian steel industry, directorate general of anti-dumping and allied duties (DGAD) has recommended imposition of provisional duties against imports of cold roll flat products from US, European Union, Japan and Canada.

    Nevertheless, excess capacity in the steel industry globally is likely to impact steel prices in the near term and consequently financial performance of steel majors. Therefore to hedge risks in steel business, companies are looking at diversification. Tisco had earlier indicated its plans to foray into telecom business and now is evaluating plans to make investments in the retail business. The company has a little experience in retailing garments and leather through its international trade division, which is now with Tata International. It may make investments in various retail ventures like the Tata's Westside chain of stores. Although, the retail segment in India has offers good growth potential, the segment is highly competitive with numerous international and domestic brands. It remains to be seen whether Tisco is able to venture into this area successfully.

    Steel production has grown at a healthy rate in September and is likely to show further improvements with a pick up in infrastructure activity. However, with realizations remaining subdued, companies are discouraged to make further investments in the sector and opting for diversifications.

     

     

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