Domestic steelmakers are rejoicing over orderbooks overflowing for the next couple of months, but industry analysts say the celebration of revival in demand is premature.
Domestic steelmakers are rejoicing over orderbooks overflowing for the next couple of months, but industry analysts say the celebration of revival in demand is premature.
JSW Steel has said it expected to sell 1.2 million tonne of steel during the January-March quarter as against 0.7 million tonne during the quarter ended December 2008. Its sales are likely to double this month over the corresponding month in 2008.
India’s top steelmaker Tata Steel recorded a 47% rise in sales in February 2009 over the previous fiscal.
However, analysts believe that the demand is short-lived and will fizzle out once the Lok Sabha elections are over. “This demand will not sustain post elections. This is just a pent-up demand,” an analyst with a domestic brokerage said.
He said that the government is trying to push infrastructure projects for better poll prospects.
According to a Citigroup Global Markets report dated March 18, the improvement in steel demand in the last two months has come from the infrastructure sector due to pressure to speed up ongoing government-funded infrastructure projects, better demand from rural India and inventory restocking.
It said, “Future growth is dependent on the outcome of elections. It is difficult to calculate the extent of steel demand from future projects as project demand could dry up if ongoing projects get completed and no new ones are announced.”
A top official from a Delhi-based steel company said, “The demand sustainability post election is a big question mark and it all depends on a good and stable government.” He said the demand may be sustained for three more months.
Another official from a steel company with major sales to the auto sector said the low demand will coincide with the monsoon season where our sales are generally lower. “Six months down the line, the demand will be lower than the current levels as the economies world over are contracting,” he said.
However, an official from a state-owned steelmaker, said, “Demand from January to June is always high due to infrastructure projects announced by the government. Elections have no role to play in that and this trend can be seen every year.” Analysts said that the upsurge in demand is due to restocking, government-funded projects, rural demand and prices likely having bottomed out.
“Better demand from the rural sector has led to most companies changing focus to concentrate on this market. However, it is not clear whether this demand will be adequate to meet the shortfall in other segments,” Citi said.
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