Due to slack in demand, steel production is slowing down
Moneylife Digital Team 27 June 2011

Along with the slowdown in all core industries due to slack demand, crude steel production has increased marginally only by 0.27% to 58.76 lakh MT in May 2011 from 58.60 lakh MT a year ago

During the course of last week, Moneylife has been publishing articles regarding the slowdown across a number of industries. Until now, we have covered the slack in demand for energy, cement, realty and textiles. All of these industries are major sectors of the Indian economy. Along with these, the steel sector is facing growth issues as well.

As per a recent report released by the World Steel Association, crude steel production in India increased marginally by 0.27% from 58.60 lakh metric tonnes (MT) in May 2010 to 58.76 lakh MT in May 2011. Comparatively, it had grown by 11.36% in May 2010 from 52.62 lakh MT in May 2009. The world production of steel across 64 countries—including India—grew by 4.19% in May 2011 over the same month last year. As for China, its production grew by 7.82% for the same period.

The demand for steel has also been impacted by the slowdown in vehicle production. The auto industry is one of the major consumers of steel. According to IIP (Index of Industrial Production) data, the manufacturing of passenger and multi-purpose vehicles fell by nearly 11% from March to April 2011. Production of commercial vehicles fell by 14% during this period. Some analysts feel that the decline is due to the slack in demand during the monsoon—but in fact, for the same period last year, the fall in production was barely 0.2%.

According to a recent Karvy report, "Infrastructure activities have been slowing down and (this is) thereby leading to lower demand for steel."

It may take some months before we see production picking up, as various broker reports state that the demand for steel might continue to remain subdued.

"There is a slump in steel consumption in both the global and domestic markets, mainly because nothing is happening in sectors like auto and construction. Going ahead, there would be a cut in production as the prices are declining and they also need to align with market conditions," an analyst told Moneylife, preferring anonymity.

The Ministry of Steel feels that the policy regarding iron-ore exports should aim at attracting investment in steel-making capacity so that the value addition and export of finished products are promoted, instead of export of raw material. However, this does not seem to have happened.

 "There is a scarcity of iron ore. Current prices won't sustain mainly because of the slump in demand for steel. However, the demand from China continues to grow. Steel production for May has shown growth on a month-on-month basis. In India, regulatory hurdles and seasonal factors have slowed down the demand for ore," added the analyst.

India is the 5th largest producer of crude steel in the world, based on rankings released by the World Steel Association and is expected to become the 2nd largest producer by 2015-16. As per the Association's April report, "India is expected to show strong growth in steel use in the coming years due to its strong domestic economy, massive infrastructure needs and expansion of industrial production. In 2011, India's steel use is forecasted to grow by 13.3% to reach 68.70mmt (million metric tonnes). In 2012, the growth rate is forecast to accelerate further to 14.3%." However if the current scenario continues, the above figures may be hard to achieve.

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