Steel producers hope for consumption rise

If demand doesn't pick up, prices and margins will sag

Steel producers are hoping home market demand picks up soon, after a long lull. Else, with government protection measures to phase out soon, primary producers could come under pressure to cut prices.

“If demand continues to remain sluggish post March, it is going to be a big problem,” Nitin Johari, finance head at Bhushan Steel, told this newspaper. “The market sense is that traders will de-stock their material by March and pick up fresh stocks April onwards.”

Early this month, the government extended till early April the antidumping duty on certain cold-rolled flat steel products from four countries, including China and South Korea. It also pulled out the last 19 products from the minimum import price (MIP), initially imposed on 173 products in February 2016.

Some traders said demonetisation played a role in dampening demand, mainly in the retail segment. “Overall, steel demand is extremely weak. There is a major cash flow problem even today. Funds are not being sanctioned as some states are busy with assembly elections and are under the model code of conduct,” said a Mumbai-based trader, on condition of anonymity.

Since MIP imposition last February, producers have raised prices nearly 70 per cent. In January, domestic prices were the highest in five years at ~39,750 a tonne, from a low of ~25,250 a tonne in January last year, before imposition of MIP.

“Producers can come under tremendous pressure to lower prices in the coming months if demand remains the way it is. Consumers might then delay their purchases further, in anticipation of deeper cuts,” said the Mumbai-based trader.

Weaker domestic demand has led to increased exports. “India has already emerged as a net exporter. Exports have risen by 73 per cent in the April–January period (first 10 months of this financial year). We expect this momentum to continue in the coming quarters,” said Vikram Amin, executive director at Essar Steel.

According to Joint Plant Committee data, exports in AprilNovember jumped significantly on a year-on-year basis, while imports almost halved. Consumption, however, remains stagnant.

“Overall, Indian steel demand is growing by three to five per cent (yearly). However, in the flat segment where we operate, it is still growing by five to seven per cent. Of course, there has been an impact on certain sectors like retail, construction and part of consumer durables. But, demand in automobiles, yellow goods, infrastructure and road development is intact and picking up. Demand from the export market has been strong. Hence, steel exports have risen significantly, bringing stability to the domestic market. So long as there is no threat from dumping, the demand and supply situation is well balanced,” said Amin of Essar.

In the coming year, however, the industry expects consumption to pick up significantly. In 2017-18 (AprilMarch), production is expected to remain higher and will be backed by an expected revival in consumption, said CARE Ratings in a recent report. An increase in infrastructure allocation by the government in the Union Budget is expected to drive the pace of construction and infrastructure, it said. The new National Steel Policy also aims to increase production.

“We are bullish on the domestic market, The various initiatives taken by the government in the past couple of years have started yielding positive results and it’s only fair to expect demand to grow in the coming months. We expect it will come from infra, roads, railways, defence and power (sectors). The Union Budget outlays for these sectors are significant," said Amin.

In the coming months, Tata Steel's Odisha unit and JSW Steel's Karnataka plant would be bringing additional capacities to the market.

Steel production is expected to remain higher in 2017-18, and will be backed by an expected revival in consumption, said CARE Ratings in a recent report