Capacity utilisation up at steel, cement firms

Capacity utilisation at steel and cement companies has improved significantly in May after a sharp drop in April.

Revival in domestic demand to a limited extent, exports and easing of curbs are driving major private sector steel companies to ramp up production. It is now hovering between 70 per cent and near-full capacity levels. Some cement companies, too, have increased capacity utilisation to about 60 per cent. Steel and cement were the biggest shockers, recording a more than 80 per cent drop, in the core sector output in April. However, as Unlock 1.0 kicks in, domestic demand is expected to improve further.

Tata Steel Managing Director (MD) and Chief Executive Officer (CEO) T V Narendran said the company is currently operating at 70 per cent production levels and about 50 per cent was focused on exports. “In the domestic segment, demand is currently led by rural markets, oil and gas, LPG and B2C segments like roofing and sheeting,” he added.

JSW Steel has ramped up production to about 85 per cent. Seshagiri Rao, joint managing director and group chief financial officer (CFO), JSW Steel, said domestic steel demand for the industry in April was down 90 per cent. So, majority of sales was exports. “In May, we are seeing a demand recovery from 10 per cent in April to 25-30 per cent,” said Rao.

V R Sharma, MD of Jindal Steel & Power (JSPL), is expecting domestic demand to pick up further in June. In May, the company exported 65 per cent of its output but Sharma expects the share to come down to 50 per cent in June. JSPL is operating at full capacity. “The MSMES (micro, small and medium enterprises) in the engineering segment have started operating. Domestic demand will improve further in June,” he said.

Arcelormittal Nippon Steel India (AM/NS India) too is operating at full capacity after a production cut in April and early May.

Public sector steel major Steel Authority of India (SAIL) is operating at around 50 per cent of the production level. Anil Chaudhary, chairman, SAIL, said domestic demand is picking up. “With relaxations to the lockdown, domestic demand will improve further. Up to July, our export order book is full,” he added. Steel industry representatives pointed out that 94 per cent of production was accounted for by six major companies in April which meant that secondary producers were either shut or had not been able to restart. However, since then, many secondary producers have resumed production.

For cement companies, easing of logistical hurdles and improved workers’ availability have helped move production levels in May. It is expected to go up further in June in the wake of more relaxations to the lockdown. “A rebound is expected in May as production had commenced owing to the demand conditions. At some plants, the capacity utilisation is as high as 60 per cent now,” said H M Bangur, MD at Shree Cement.

According to industry officials, the individual house builders (IHB) segment, which drives 55 per cent of the annual demand, has been reviving after construction activities were permitted by various state governments.

“From March-april, we have understood that the pandemic is typically an urban phenomenon and the effect has been felt in the urban sector mostly. However, in rural areas, the demand is driven by individual households and some government-sponsored construction activities,” said an industry official.

The primary reason for this is labourers employed in rural IHB construction are mainly locals while in urban centres, it is migrant workers who are speeding back home. Moreover, government projects like road and irrigation, which employ local labourers under the MNREGA scheme, have also started driving demand.