When the steel production in the country looks to inch upwards, consumption of the commodity continues to remain sluggish. It is just reversal of the first half of the last year when consumption had outgrown production. While the mismatch then had led to all time high steel prices, the current gap is likely to put prices and margins of steel companies under even more pressure.
In the April-January 2008-09 period, finished steel production grew by 1.1 per cent even as consumption declined by 2 per cent largely on account of slow off take by infrastructure and real estate sectors. During the period, both exports and imports declined by 25 and 16 per cent and the stock almost tripled to 1.3 million tonne to 0.3 mt last year.
“In the short term scenario, profitability and prices will be under pressure,” said Naveen Vohra, partner, Ernst and Young. “Though production has stabilised, there will not be any growth in the first half of this year. There has been a price correction over July-August 2008 levels, but there may be some more correction in the offing.”
Prices of major varieties of steel — hot rolled and cold rolled coils — have fallen by over 30 per cent between July and December 2008. HR coil prices at Rs 34,944 per tonne have in fact fallen below the December 2007 level of Rs 35,100 per tonne.
Falling prices have also hit profitability of steel companies with Steel Authority of India Ltd and Tata Steel registering a 56 per cent dip in profits in the Sept-December 2008 period, while Jindal South West incurred a loss during the same period.
“Currently there is some demand in products used in the real estate and infrastructure, but not much demand for flat products used in consumer durables and automobiles,” said PK Rastogi, steel secretary. “The mismatch is such that while between April-Sept 2008, production grew at 4.3 per cent, consumption grew at 5.6 per cent, while between Oct-Dec production declined by 8 per cent but consumption went down by 13 per cent.”