Sluggish demand, high costs concern for steel companies

Contrary to the 8-10 per cent annual growth prediction, the steel industry witnessed only 1.5 per cent growth in consumption for the April-June period due to high interest rates.

Although a few companies said the slowdown in sales was temporary, the majority are worried. Ankit Miglani, deputy managing director, Uttam Galva, said: “Production cuts are imminent going forward. There is no possibility of price cuts as carbon steel is already being produced at cost levels.”

While three major producers — SAIL, RINL and Tata Steel — grew production by 1.3 per cent during April-June, mid-sized companies such as JSW Steel, Essar Steel Jindal Steel and Power, Bhushan Steel and Ispat Industries, saw production grow by 6.1 per cent. Production of other smaller steelmakers grew 9.6 per cent, according to data of the Joint Plant Committee (JPC), a government body that tracks steel data in India.

A top Essar Steel official said: “Infrastructure spends have come down. Steel is mostly used in the construction and infrastructure sectors and that is stalled at the moment.”

Although imports of steel has reduced sharply, India continues to be a net importer of the commodity. The country imported 1.3 million tonnes of steel and exported 1.07 million tonnes. Steel imports, however, dropped by 52 per cent over the same quarter of last year. Exports shot up by 71.8 per cent.

Prasad Baji, senior vice president, Edelweiss Securities, said: “There is definitely a slowdown in demand and that, in our view, will continue for at least two quarters.”

Baji said smaller steelmakers may have to resort to production cuts but that will be on a company-to-company basis and not an industry-wide phenomenon. “The bigger steelmakers will probably slow down capacity addition which were expected to come on stream this year.”

JSW Steel is expected to commission its three-million tonne steelmaking capacity at the Vijayanagar plant in Karnataka. The commissioning of the furnace is behind schedule by a quarter. Tata Steel is also expected to commission its blast furnace of three million tonnes by the year-end.

Sushil Maroo, director (finance), Jindal Steel and Power, however, said: “This drop in steel demand is temporary. High inflation, high interest rates and scarce liquidity is hurting growth. But, this is temporary.”

Maroo said temporary hiccups are in no away affecting the long-term growth story. “Setting up of a steel plant takes 3-4 years and one quarter of slow demand does not deter the decision to allocate investments.”