A Recovery For Indian Steel?

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It may be a tad early to bring out the champagne but, yes indeed, India’s steel consumption has started showing initial signs of recovery from July this year, fueling expectations of a good showing until the end of the fiscal year.

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Figures released by the World Steel Association (WSA) show evidence of the early turnaround. World crude steel production in July had gone up by 1.7 percent on a year-on-year basis to 136.8 million tons as compared to 134.52 mt, because of growth in the US, Asia and Middle East. For India specifically, steel demand in the same month was on par with the world average of 1.7 percent with production at 6.96 mt from 6.84 mt a year ago. It was expected to grow to 76.2 mt in 2014, following a 1.8 percent growth in 2013, the WSA said in its short-range outlook for 2014 and 2015.

Late last month, Moody’s Investor Service revised its outlook on Asian steel industry to “stable” from “negative.” A report in The Hindu BusinessLine said it expected steel consumption in India to pick up once the new government’s infrastructure spending policies were put in place. But for Asia, Moody’s had added a rider – it warned that the outlook would return to negative if manufacturing in China declined. The agency expects steel demand growth in China to slow to about 3 percent during the next 12 months from about 9 percent in 2013 because of a slowdown in GDP growth and housing construction, among other factors.

Unlike China, Indian steel consumption grew by just 0.6 percent in 2013-14 fiscal, its lowest in four years, to 73.93 mt, largely because of a slowdown in its domestic economy and lower imports. Now, with the new government in place, and the monsoon season almost gone, (when demand comes down) everybody expects steel consumption in India to pick up, especially because that would also be the time when the government’s infrastructure spending policies are put in place.

The automobile sector in India has been leading the steel rally, registering a pick up in the last month. That, coupled with the government’s thrust on infrastructure, should help boost India’s domestic steel demand, which grew at a rather dismal 0.3 percent during April-June 2014.

in another Asian market, Japan, Moody’s has said Japanese steelmakers will remain better positioned than other Asian counterparts due to a favorable domestic supply-demand balance and a weak yen.

Koushik Chatterjee, Group Chief Financial Officer, Tata Steel said in an interview to moneycontrol.com that the pace of recovery in the metals and mining space seemed to be slower than expected as China’s slow growth has been hampering global demand, a reason why Chinese demand and supply had to be monitored.

While auto demand may have brought some cheer to India’s steel sector, what remained worrisome was that India’s industrial output growth had hit a four-month low in July, and high inflation.

About 60 percent of Indian steel consumption is by the construction sector. The sector did not see activity in the first few months of 2014-15 but is set to gain momentum post-monsoon.

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