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Production of finished steel to decelerate to 3-4% in current fiscal

The gloomy outlook on finished steel output comes after five years of consecutive firm growth between FY15 and FY19

Jayajit Dash  |  Bhubaneswar 

steel, manufacturing
Steel manufacturing

The production of finished in FY20 is slated to decelerate to 3-4 per cent year-on-year as large players plan to hold back ramp-ups in the wake of depressed prices and slump in automobile sales.

“No major capacity is expected to come up from large players while the small steel players are estimated to increase their output at a rate similar to last year. The commissioning of projects by large companies is expected to come up in later years”, said Bhagyashree C Bhati, research analyst at CARE Ratings.

The gloomy outlook on finished steel output comes after five years of consecutive firm growth between FY15 and FY19. During this time span, domestic crude steel production grew by 4.8 per cent compounded annual growth rate (CAGR). India is the only country among the top five steel producing nations (China, Japan, the US and Republic of South Korea) to have clocked growth in the last five years. All the other nations in the group had to suffer de-growth in one year or more.

However, FY20 has seen a lacklustre start for the domestic The slowdown has been pervasive across production, consumption and prices due to weak demand from user industries. Globally too, weak economic growth, festering trade tensions between the US and China, and higher steel production from China have led to depressed steel prices.

Manish Kharbanda, president, Pellet Manufacturers Association of India (PMAI) said, “The appears to have been in a slowdown. Product prices have dropped by 15-30 per cent. Unless the government comes out with suitable measures, the deceleration in steel growth looks inevitable”.

Steel consumption rose at a slower pace of 5.7 per cent to 33.3 million tonnes during the first four months of FY20 (April-July 2019) compared to the growth of 9.2 per cent during the corresponding period of the last year. A slowdown in the automotive industry and a marginal growth in the consumer durables segment hurt steel demand.

"In addition to this, moderation in construction activities around general elections is also believed to have impacted consumption of steel. These factors thus resulted in mere 1.4 per cent growth in finished steel production to 18.1 million tonnes during April-May 2019. Similarly, crude steel production increased by a marginal 2.7 per cent to 36.9 million tonnes during April-July 2019 compared to a rise of 10.6 per cent during April-July 2018," said a update by CARE Ratings.

The country's automobile production sagged 10.5 per cent during April-June of this fiscal year as against a robust growth of 16.6 per cent noticed in the comparable period of FY19. Output from consumer durables segment was also muted and rose by a meagre 1 per cent in April-May of 2019 compared with 5.4 per cent in the year-ago period.

The two factors combined pulled down prices of flat - cold rolled (CR) coils and hot rolled (HR) coils - in the range of 4-7 per cent during Q1 of this fiscal. Prices of TMT bars also fell by 1.1 per cent between April and July.

Depressed product prices rubbed off on the sales and profitability of companies manufacturing steel and iron products in Q1 of FY20. Industry sales declined by 3.5 per cent, while net margins contracted in the range of 4.1-5.5 per cent.

First Published: Fri, August 16 2019. 19:03 IST
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