Silent turnaround in steel consumption in India has surprised many in the industry. Steel market essentially becoming a function of throes of speculation has culminated in disbelief about the upswing in consumption by 8.8 % in Q1.
Silvery streak in gloomy canvass stands in contrast amidst plummeting economic indicators. An abysmal 5.3 % GDP in March and Industrial production which shrank by an unexpected 3.5% in March had rarefied atmosphere. In an economy desperately desirous of limping back to normalcy key demand driving sectors viz., construction, automobile and infrastructure have played a stellar role in this revival path.
Infrastructure growth in May of 3.8 % higher than April 3.1% is encouraging but far from the 5% achieved during the same period in 2011. Infrastructure has weightage of 37.9% in Industrial output. However the construction segment and automobile segment have lagged.
Sluggishness notwithstanding construction and automobile the core sector has notched impressive growth in May as follows:
Coal - 8%
Crude oil - 0.5%
Petroleum - 2.9%
Steel - 4.9%
Cement - 11.3%
However the malaise of high inflation leading to prohibitive lending rates has stalled major CAPEX project in construction segment. Turnaround from 1.5% in to 8.8% from last year in this year in Q1 seems miracle silhouetted against a dismal demand triggers.
Some extent the Provisional estimates by the Joint Plant Committee under the Steel Ministry indicate that consumption for the June quarter grew to 18.195 million tonnes. In the same quarter last year, consumption was 16.72 million tonnes, registering a mere 1.5% growth.
Total production of finished steel for the latest quarter grew 4.9% to 18.87 million tonnes against 18 million tonnes in corresponding last period. Imports rose sharply by 41.2 per cent to 1.99 million tonnes during the quarter (1.41 million tonnes). Exports were down 15.2 per cent to 1 million tonnes (1.18 million tonnes).
The numbers certainly have certainly expectancy in beleaguered economy. The improved consumption is led by demand for long products from ongoing projects in the construction sector, though fresh investments are not happening and might be a tapering effect.
Halo of growth should not be oblivious to the stark reality that inflation continues to hover above 7.5 % and the fiscal deficit in is above 5% obliterating any signs of reduction in lending rates .
It needs no emphasis that long product market has been extremely volatile during Q1 and bulk of inventory pile up and price flares where result of anticipated price hike and cost escalation rather than actual demand. Depreciating Indian Rupee coupled with power shortage, hike in power tariff and iron ore shortage have been main propellers of price and speculative buying.
Flat product market has never seen light of the day in the last 18 months with mills playing second fiddle to the swings in import parity. Stocks remain high with mill and price maintains a stoic silence.
Indian mills capacity expansion will do little to salvage the situation as the production will certainly surpass last year’s figure of 72.5 million tonnes. World Steel Association short range outlook for 2012 pegging demand growth at 6.9% to 72.5 million tonnes is plausible only with unleashing of new infrastructural projects and radical policy measures to trigger demand. Else the euphoric numbers will vanish in no time.
Source - SGRI
(www.steelguru.com)
