At 3.3% growth in Sep, steel consumption shows signs of pick-up.

India’s finished steel consumption in September rose 3.3% from a year ago to 6.24 million tonne (mt), but was almost flat sequentially, growing only 0.6%, according to provisional estimates released the Ministry of Steel. Production during the month rose 12.2% to 7 mt.

April-to-August steel production grew 6.2% from a year ago to 40.4 mt, while consumption rose marginally 0.8% to 36.6 mt. Exports grew substantially during September as the rupee averaged at 63.75 against the dollar. Exports grew to 4.9 mt in September, up from 4.5 mt from both August and September last year. Imports declined to 5.35 mt from 5.8 mt from August and September last year.

Steel demand has remained flat this fiscal due to slowdown in the key automobile and construction sectors.

JP Morgan said in a report that near 4% on-year growth does not say much in normal times, but is a good number in current times. The report said it was second highest on-year growth in past 14 months.

“This is in line with our thesis that domestic steel consumption has bottomed out, and while there is no ‘V’ shaped recovery there should be some gradual pick-up in demand from good harvest, positives from rupee depreciation flowing through the export sectors, and import substitution from rupee weakness. The demand number also supports the price increases seen in September and October (5-8% across flats and longs),” the report said.

However, the analysts dna spoke with remained cautious about steel consumption recovery.

“Demand was at its worst in September and the consumption story still remains very weak. While there might be some pick-up due to ongoing festive season, any significant recovery is still far,” Goutam Chakraborty, an analyst with Emkay Global Financial Services, said.

Primary steel producer has, however, been more enthusiastic about recovery in steel demand during rest of the fiscal. At the beginning of this month, Sharad Mahendra, senior vice-president, flat products at JSW Steel had told dna that he expects demand to revive post monsoon grow at 5% rest of the year.

Last month, outgoing Tata Steel managing director H M Nerurkar had said India’s steel consumption would grow around 5% this fiscal. Chakraborty said a lot depends on implementation of projects and clearance of bureaucratic hurdles. He thinks that 5% steel demand for rest of the fiscal looked difficult.

Despite slower demand steel producers have been able to take price hikes in past two quarters, in a ‘blessing in a disguise’ situation, as supply and availability of steel remained tight in the market.

With increased export of steel products and reduction in imports, availability of the metal remained a challenge. Chakraborty said out of total 90 mt domestic capacity only 75 mt was operating.

Several small steel mills have shut shop following shortage of iron ore. While demand may improve, there was equal scope for improvement in supply, Chakraborty said. SAIL may commence capacity additions in Rourkela and Burnpur over next six months while capacity utilisation of Tata Steel is also seen improving.

Source : dnaindia.com