Steel Demand in India Set to Grow Soon – So Are Prices

India’s steel sector seems set to see some good times ahead though the news may not be so cheerful for steel consumers.

A slew of upcoming investments in India, many of which will require large quantities of steel, is one of the main reasons for the country’s steel industry positive outlook in the latter half of this fiscal year. About 74 investments worth a total Rs 508 billion (approx US $ 8.84 billion) have been identified, many of which will require a steady supply of steel. The largest in the 74 investments is incidentally a Rs 300 billion (approx US $5.30 billion) steel manufacturing plant in the Indian State of Karnataka by Tata Steel, clearly underlining the bullish behavior in this sector. The plant will eventually produce up to 6 million tons of steel.

The demand for steel in the next half of this fiscal year is expected to be led by automobile companies. Two-wheeler company, Hero Motocorp plans to invest Rs.5 billion in its existing plants in Dharuhera, Gurgaon in Haryana and Hardwar in Uttarakhand for renovation and modernization. All of which means a boost to the steel sector despite possibilities of a slowdown in the international markets.

A report by one of India’s leading private economy thinks tanks, the Centre for Monitoring Indian Economy (CMIE), released over the weekend said steel production in India was likely to grow by about 10.4 per cent this fiscal year due to growth in demand.

In terms of supply, Indian steel producers continue to rely to a large extent on imported steel. According to a study by the Joint Plant Committee, a body empowered by the Steel Ministry of the Govt. of India to collect data from the iron and steel sectors, India’s steel imports had jumped by 69% to 1.528 million tons in the first two months of this year due to the firm demand from the automobile, consumer durables and manufacturing sectors. India’s steel imports during the April-May period of the last fiscal year were at 0.907 million tons.

Over the weekend, Indian newspapers also carried reports quoting excerpts from this report. One of them said despite the slowdown in domestic conditions in some of the end-use markets, demand remained firm from sectors like motor vehicles, transport equipment, basic goods, consumer durables and manufacturing.

Of the total imports during April-May this year, flats made up 1.329 million tons with non-flat products making up the balance.  Consumer durables uses the former while the construction industry larges uses non-flat varieties.

Experts though warned that the weak rupee in the international currency markets as well as the fluctuating US dollar/rupee exchange rate, largely in favor of the dollar could underlie the high imports.

End-consumers may see some bad news. Prices may not remain flat due to healthy demand. A rise in raw materials costs coupled with a hike in excise duties could eventually see steel prices increase by about 5.7% this fiscal as compared to the previous one, if one believes the CMIE report.

In its monthly report, the agency said it expected steel companies to undertake a further round of price hikes in the coming months of 2012-13. Not long ago, in fact just this past April many of India’s steel companies increased prices in the range of US $125 – $250 per ton, following a provisional change in prices indicated by state-run iron ore producer, NMDC, and the freight hike by Indian Railways.

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