India’s Steel Growth: Many a Slip Between the Cup and the Lip?

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The first piece of news is no shocker.

India’s steel consumption, despite the country being one of the few in the world still with a reasonable overall development growth rate, rose by a mere 3.3 percent in 2012-13 fiscal year to 73.3 million tons.

No prizes for guessing why.

A slackening economy, high rate of inflation and the high interest rates leading to costlier borrowings resulted in subdued demand. In fact, the rate of growth in the steel sector was the lowest in three years, according to a report in the Hindu Businessline.

But a pronouncement by the global steel industry body, the World Steel Association (WSA), that India’s steel demand would grow by 5.9 percent to 75.8 million tons by the end of 2013 has made some in the sector say, “We wish.”

To be fair to the WSA, it cannot be completely blamed for putting out such an optimistic outlook. After all, steel demand did grow by 5.5 percent in 2011-12 and 9.9 percent in 2010-11.

Joining the WSA was India’s leading private steel manufacturer, Tata Steel. The company’s managing director, H.M. Nerurkar, recently told Indian news agency Press Trust of India (PTI) that his company was hoping that steel would grow at a faster rate of between 6 and 8 percent in 2013-14.

Nerurkar has based his faith on India’s economy kick-starting, thus leading to a high demand for steel. On the consumption growth of steel at 3.3 percent lagging behind the country’s estimated 5 percent GDP growth in the fiscal year just completed, he added that major steel-consuming sectors had not grown well then, but they would in the current fiscal period.

Data released by the Indian government showed that India’s consumption of steel last year was mainly in the construction and consumer durables sectors. But in almost every other sector, including automobiles, the slowdown had led to nearly all major steel firms being forced to curtail capacity utilization. Automobile sales in the last quarter were down by as much as 22 percent. Auto production and sales grew the slowest in over a decade by a meager 1.2 percent and 6.7 percent, respectively, in 2012-13.

According to a leading think tank in India, the Strategic Research Institute, instead of pegging the chances of a revival on a resurgence in domestic demand, India’s steel mills should initiate the following measures:

  • Ensure raw material security by acquiring, developing and operating overseas
  • Focus on project management as a core capability integral to its growth objectives and optimizing scarce resources
  • Enhance customer centricity to give them the cutting edge
  • Build a differentiated supply-chain and adopt a made-to-order and make-to-stock production strategy

However well-meaning the WSA forecast, the growth figure they put out will not be met, say analysts, if the policy paralysis within the Government of India continues, and regulatory impediments denying raw material security to the steel sector are not removed as soon as possible.

Plus, India would be seeing parliamentary elections in 2014, and an election year almost always means a slowdown in the pronouncement of government policies – which could be another damper, albeit temporary, in the growth story.

Sohrab Darabshaw contributes an Indian perspective to MetalMiner.

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