Flagging demand from automotive and real estate sectors took a toll on steel production in February.
Flagging demand from automotive and real estate sectors took a toll on steel production in February.
Though the exact production figures for the month are not yet available, data from the Joint Plant Committee (JPC), a statistical body under the Ministry of Steel, show that cumulative production growth for the April-February period fell to 2.9% year on year, compared with 3.3% in April-January.
This suggests a deep drop in February.
To be sure, this is the first time since the global financial crisis of 2009 that the industry has seen growth plummet to 2.9% levels.
The flagging demand also reflects in the lower import numbers for February – at around 6.19 lakh tonne compared with more than 7.5 lakh tonne in earlier months.
All this bodes ill for the manufacturers – and the economy at large – next fiscal, say analysts. Steel and cement are typically the first to reflect any positive movement in the economy and the past few months have given no indication of an improvement in either.
“JPC data is provisional and changes once the final figures are obtained. But there’s no running away from the fact that elasticity of steel demand as compared with the GDP has fallen substantially in the current year, and there seems to be no immediate trigger for a change in the situation,” said Sanjay Jain, senior vice president – research (steel), Motilal Oswal Securities Ltd.
Typically, the elasticity of steel demand vis-a-vis GDP in emerging market countries is 1-1.5 times the growth rate of the country’s GDP, said Jain. But in India, it has fallen below 1 after holding around 1 for a good 10 years.
As for triggers, analysts rue that even the Union Budget did not provide any this time.
If anything, “pre-election spending” could provide some impetus, said an analyst with a leading international brokerage.
The situation particularly hurts the smaller players, who take the sponge iron route for steel production, said Eric Martins, analyst from brokerage Systematix. These players, mostly located around Orissa and Karnataka, have been forced to cut production while the bigger players are pushing volumes.
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