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Domestic steel demand, prices rise

Shubhashish / Mumbai Feb 18, 2012, 00:05

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After the very forgettable three quarters of the current financial year when growth in demand for steel fell steadily, industry players may now have reason to smile — January figures point to an upswing in demand.

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According to data provided by the Joint Plant Committee (JPC), demand for steel in India grew 7.7 per cent in January on a year-on-year (y-o-y) basis. Although sequentially, the demand growth has fallen, as in December the country posted 8.7 per cent growth.

An analyst tracking the sector said, “There is definitely a revival in demand. December and January demand growth are the highest in the current financial year. The construction and infrastructure activity is only adding to the momentum.”

During the first six months of the current financial year, demand for steel had grown by a mere 1.8 per cent. According to the JPC data, till January India consumed 57 million tonnes (mt) of steel, a growth of 4.7 per cent over the same period last year.

This is compared to the industry’s expectations of demand growth to be 1-1.5 times the GDP growth, i.e. 8-11 per cent. “The demand growth has clearly lagged expectations this year. However, we are seeing renewed activity in buying in the current quarter. Yearly growth numbers for the sector will continue to be dismal,” said a company executive.

This hasn’t stopped steel makers from raising prices. Jayant Acharya, director (marketing and commercial), JSW Steel, had in January confirmed the company had increased prices of long products by a small margin.

The Steel Authority of India Ltd (SAIL), too, raised prices by Rs 3,000 a tonne in the past few weeks. Tata Steel and Essar Steel, too, revised prices upwards recently. Another analyst pointed out, “Though demand has been weak and is now reviving, price increases were bold moves by companies. They are lucky that buyers have accepted the rises and demand is up.”

Satish Kumar and Saurabh Prasad of Standard Chartered Equity Research, in a note dated February 9, wrote, “The Indian long product market has also been doing well, given that many small producers (DRI-based plants) have been forced to shut because of iron ore scarcity.”

They added, “In the first week of January, long product prices were raised by three per cent and in mid-January a further increase of 1.5 per cent took place. Our channel checks indicate these increases have been accepted by the broader market. The average long product price has jumped by around 4.5 per cent to Rs 37,500 a tonne.”