Clearly, for the past several quarters now, almost as way back as 2011, Indian steelmakers have been suffering. Catch up on the travails of both Tata and Jindal Steel in Part One.
First, it was the shortage in local iron ore, then coking coal, then the flagging economy, not to mention the high finance cost because of the increase in US dollar against the Indian rupee.
So while analysts such as Ashish Upadhyay, director of corporate ratings for India Ratings, believe that a better GDP growth of 5.6 percent in 2014-15 on the back of a revival in industry growth would lead to better steel demand growth next year, most are only willing to stick their necks out so much. Almost everyone is unanimous that the growth range will be 3-5 percent, and not more.
Who can blame them?
The drop in domestic consumption has everyone fearing the worst. India’s steel consumption grew 1.8 percent during the April-December period of this financial year, year-on-year, to 53.78 million tons, as major steel consuming sectors flagged, reflecting a slowdown in the economy.
Total production of finished steel over April-December grew to 60.4 million tons, up 5.2 percent year-on-year. India’s total steel exports for the first three quarters grew by 9.5 percent to 4.1 million tons, while total steel imports registered a sharp decline of 29.2 percent to 4 million tons.
India currently has about 95 million tons of installed steel capacity and expects to add about 13 million tons within 2014-15. Analysts believe this, too, would add to the pressure on the margins of steel producers, given the high cost of production and their limited ability to pass on hikes in costs. The only silver lining here is that the availability of iron ore should improve, limiting a hike in costs.
The supply of ore can easily be said to be the biggest worry for Indian steel majors. That’s one reason why India’s third largest steelmaker, JSW Steel Ltd., and 19 other steel companies in Karnataka recently filed an appeal with India’s Supreme Court asking it to help speed up availability of iron ore in the state.
The state of Karnataka is the second-largest iron ore producing state after Odisha, where the steel industry has almost ground to a halt after a ban on ore production that was in force for the duration of the illegal mining and environment case.