Steel cos on a tough sales grind locally

The country has become a net exporter of steel since the start of this fiscal – a position the industry had long craved. But numbers released by the Joint Plant Committee (JPC), a statistical body under the Ministry of Steel, pooped the party almost as soon as it started.

According to the JPC, in the first two months of this fiscal, steel imports have fallen faster than the rate at which exports have risen – indicating tepid demand in the domestic market.

For April and May, cumulative steel imports stood at 8.98 lakh tonne, down  41.2%, though a tad better than the 47.8% plunge seen in April to 3.5 lakh tonne.

According to A S Firoz, chief economist, JPC, steel – the backbone of sectors such as automotive, real estate, consumer goods like refrigerators and washing machines, construction of roads and highways – typically grows at 1.5 times the gross domestic product (GDP) when the economy is growing above 6%.

However, whenever the economy slips back below 6%, the growth rate of steel usually lags the GDP by 1%.

The latest decline in steel imports is in sharp contrast to the last fiscal, when total imports of steel were  14.6% higher than the previous year, in spite of it being one of the weakest years for the industry.

“While the JPC continues to revise its data before its final list and these provisional numbers will also be revised, slower rate of growth over a weaker base is obviously a concern. Even if the data changes in the final figures, the variations are more or less offset in the import and export numbers,” said an analyst with a leading international brokerage, requesting anonymity.

This means, while capacity in India is rising, there is no commensurate growth in demand, thereby putting a question mark on the future financials of the companies commissioning scores of steel manufacturing capacities.

According to the JPC, India’s steel demand at the start of the last fiscal was around 71 million tonne (mt), which grew 3.3% to around 73 mt over the year.

This was against a production of 75 mt at the start of 2012-13 and 90 mt at the end of it, steel minister Beni Prasad Verma said at a Parliamentary Consultative Committee meeting recently.

“For companies such as Tata and JSW, exports are not a problem, so they will have to export their excess material to maintain topline growth, but the problem will be for smaller steel players who will find it difficult to survive,” said the analyst from the international brokerage.