Steel demand growth may slow as interest rates climb

India’s first-half steel demand growth may slow as surging interest rates sap demand for homes and automobiles and delays in land acquisition and environmental clearances hold up public works.

The pace of growth will probably drop to eight per cent in the six months ending September 30 from about 10 per cent a year earlier, G K Basak, executive secretary of the steel ministry’s joint plant committee, said in an interview. Sales may stagnate for the full year, he said, without giving a number.

The central bank, which raised interest rates on June 16 for the 10th time since the beginning of last year to fight surging costs, has indicated it will continue to raise rates. A slew of festivals in the second half, when demand for cars and homes usually climb, may not be enough to revive steel sales, said Ghanshyam Das Agarwal, chairman at Adhunik Metaliks Ltd, a Kolkata-based maker of steel products for automobiles and power plants.

“If interest rates were to be raised any further that will have a major implication on steel demand,” said Bikash Bhalotia, a metals and mining analyst at PINC Research in Mumbai. “If India has to sustain a growth of eight to nine per cent, infrastructure spending would be the need of the hour.”

Slowing demand will restrain Tata Steel, SAIL and JSW Steel, India’s top producers, from raising prices, Bhalotia said. The steelmakers may also cut prices if demand remains sluggish and the cost of raw materials fall, he said.