Centre for Monitoring Indian Economy Bullish on Indian Steel Sector

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Researched by Industrial Info Resources (Sugar Land, Texas)--According to a report recently published by the Centre for Monitoring Indian Economy (Mumbai), the country's leading economic research company, India will see a surge in demand for steel in the present fiscal year, 2009-10, but the price of steel in the country will continue to remain weak. The domestic price of steel will not increase because of the fall in input prices.

In March 2009, the demand for cold- and hot-rolled coils increased 2% and 1.8%, respectively, while the demand for galvanized steel rose 2%. In January of this year, the average price of cold-rolled coils and galvanized steel fell 3.6% and 9.1%, respectively, while the price of hot-rolled coils slumped 11.3% in comparison to the prices recorded in December 2008. The prices of thermo-mechanically treated bars fell 3.5%. This drop has been attributed to distress sales and destocking by manufacturers.

The report states that the steel industry will recover from declining demand this fiscal year, with a growth of 6.5% in 2009-10. Additional production capacity of 4.8 million tons per year will be commissioned this year, taking the total finished steel production capacity in the country to 70 million tons per year.

Infrastructure projects sponsored by the government and the revival of the automobile, real estate and property development sectors are expected to create stronger demand for steel in 2009-10. According to the report, the real estate sector will see an improvement during the second half of this fiscal year, with property prices coming down and interest rates being lowered. The increase in demand may also be reflected in the steel prices going up by 2-3%, but no significant increase or price recovery is expected this year.

India's Steel Secretary, PK Rastogi, recently exuded confidence that steel production in India this fiscal year is set to exceed the past fiscal year's output. During January-March 2009, India's steel consumption increased by 3.8%, and production went up by 1.2%. The domestic demand for steel in the last six months of 2008 fell 40% because of the global slump in industrial production. The price of steel declined sharply from its peak of $1,150-$1,250 per ton to $500 per ton last year.

Given the present circumstances, the Indian government is considering levying a "safeguard duty" of 10-15% on imports of some steel products in order to protect domestic manufacturers. With the slump in steel prices, Indian buyers are turning to cheaper imports from Korea, China and Japan. Ispat Industries Limited (BSE:500305) (Kolkota) and Essar Steel Limited (Mumbai) filed a petition urging the government to implement the "safeguard duty" to provide relief to Indian steel producers. JSW Steel Limited (BSE:500228) (Mumbai) and Steel Authority of India Limited (BSE:500113) (New Delhi) have also expressed support for this petition. These companies cumulatively accounted for more than 80% of India's steel output during April 2008-February 2009.

The economic meltdown has also affected the steel industry globally. Steel major ArcelorMittal (NYSE:MT) (Luxembourg) has decided to defer plans to build two steel plants in India. The firm also reduced capacity and trimmed production in Europe. Before the financial crisis, the global steel industry had seen a huge upswing in demand caused by growing industrial development and demand in China and other emerging economies, the auto industry in the U.S., and the property boom in West Asia. With China facing a decline in exports and West Asia reeling under a severe credit crunch, the global demand for steel has dwindled. Morgan Stanley (NYSE:MS) (New York, New York) has forecast that in the present scenario, steel production facilities worldwide may have to operate at less than 75% of their full capacities.

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