India's Steel Outlook for Rest of 2012 Hinges on Imports, Iron Ore

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Continued from Part One.

So how will India’s steel sector end 2012?

As compared to other nations, India still enjoys healthy steel demand and will definitely end up in the black. But whether the growth will touch double digits is doubtful.

Growth will be nothing compared to what it was even a year ago. The domestic steel demand had been growing at an annualized 12 percent rate until a year ago. Until July of this year though, it had faltered with a growth rate of merely 4.7 percent.

The ratings agency Fitch, in its outlook for steel manufacturers, said it predicted steel growth to be in the region of about 7 percent for the remaining months of 2012.

Because of such analyst’s predictions, even stocks of major steel companies such as SAIL, Tata Steel and JSW Steel were down 4 to 7 percent in the last week alone. An article in the Business Standard reported that analysts had downgraded some of the steel counters as they believed their bottom lines could be further affected because of poor earnings due to lower demand and price outlook.

Not only is finished steel facing trouble, but iron ore exports are also not looking so hot. Exports here are likely to fall to about 45 million tons during the current financial year, a drop of 62 percent compared to an all-time high of 117 million tons exported in 2010-11, and a 37.7 percent fall from the last financial year’s 62 million tons.

We can point to a high export duty of 30 percent and increased freight rates on iron ore for domestic and export use by the Indian Railways, among other things, as some of the reasons for this.

The only glimmer of hope in all this is the Supreme Court of India order last week lifting the ban partially on mining operations in the southern state of Karnataka. Many believe that this could revive iron ore production — though that may not happen immediately.

Sohrab Darabshaw contributes an Indian perspective to MetalMiner.

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